Boston Fed President Eric Rosengren sounded hawkish in his comments today. Referring to Fed’s projection of two more hikes this year, Rosengren said that “somewhat more tightening may end up being needed”. He expected a “somewhat stronger” economy ahead than the already “quite positive” FOMC projections. He also pointed to solid performance in job creation, falling unemployment and inflation close to Fed’s 2% target.

However, Rosengren also pointed out short-run and long-run risks to the positive outlook.

For the short run risks, he pointed to trade tension. He noted that “it would take a significantly broader set of trade actions than those reported to date to materially reduce the roughly $2.4 trillion in annual U.S. exports.” But still “spillover effects are possible.”

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Another run risk is an overheated “boom-bust” scenario. Particularly, “periods in which unemployment dipped significantly and persistently below the estimated natural rate historically have tended to generate conditions that resulted in a recession.”

In the long run, he expressed his concern regarding the narrowing of fiscal and monetary buffers. He said “by using up so much fiscal capacity now – by which I mean the ability to lower tax rates or boost federal spending to offset economic weakness – the country risks not having sufficient fiscal capacity in the future when it might be needed.”

There would be also be little room for monetary policy to respond to a large adverse shocks considering the median forecast among FOMC members for longer-run interest rates is 2.9 percent – “quite low” by historical standards

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