The Federal Reserve should hike interest rates three more times this year and at the same time start shedding its bond holdings, a Fed policymaker said on Wednesday, mapping out a somewhat hawkish option for the U.S. central bank.
Boston Fed President Eric Rosengren, an influential official who helped convince colleagues to increase the pace of tightening over the last half year, said they should "explore" their median prediction of only two more rate hikes before year end.
"Along with a gradual reduction in the level of the balance sheet, it would still be reasonable to have three rate increases over the remainder of this year," he said in prepared remarks that largely restated his policy stance.
The Fed has raised rates twice since December and they now stand in a range of 0.75 to 1 percent. While officials largely predict to begin letting some of the Fed's $4.5 trillion in bonds run off later this year, there is internal debate over whether to temporarily pause rate hikes at that time.
U.S. unemployment is comfortably low at 4.4 percent and inflation is just below a 2-percent Fed target, though overall economic growth was weak in the first quarter of the year.
"I do not regard the weakness in first quarter data as a harbinger of softness in the underlying economy, and the strength of the labor market report on Friday provides some strong confirmation of that view," said Rosengren, who does not regain a vote on policy until 2019.
Addressing the Lake Champlain Regional Chamber of Commerce, he added that risks to the U.S. economy from abroad "seemed to have abated somewhat."
(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)