Rosengren’s Hawkish Tilt

The only noteworthy policy comments last week came from Rosengren (12/27). He warned that “there are geopolitical risks that are now more severe than they were a couple years ago” but did not cite any specific areas. He also pointed toward systemic interest-rate risk as a potential development: “it’s not just the United States that has had low interest rates—it’s a global phenomenon. I do worry that we may start to see ‘reach for yield’ kinds of behaviors on financial investments that could potentially have broader implications at a time when monetary or fiscal policy can’t react if we get a big negative shock.” To him, 2018 is an opportune time to examine “the potential side effects of having low interest rates for a long period of time” and ask: “How destabilizing is such an environment? Do we see asset bubbles? What is the investment environment being created with monetary policy, and with U.S. fiscal policy?” His comments were consistent with our conclusion that he sees four hikes as an appropriate pace for 2018 (see Naming the December Dots: Pace of 2018 Hikes).