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Fed's Rosengren open to easing but wants to see evidence of slowdown

The Federal Reserve does not need to ease policy at the moment since the U.S. economy is still in "pretty good" shape, Boston Fed President Eric Rosengren told Bloomberg Television Aug. 19.

Rosengren, who voted against the Fed's July 31 rate cut, said he was open to easing policy but would first want to "see evidence" that slower growth abroad is spilling over into the U.S. and weakening the economy substantially.

There are "plenty of things to be worried about," Rosengren said in the interview, listing continued trade policy uncertainty and Brexit as two key risks hovering over the U.S. economy. But strength in the consumer sector, which makes up about 70% of the country's economy, is expected to keep U.S. GDP growing at approximately 2% in the second half of 2019 even as business investment figures weaken, he said.

"Unless that changes — and it may change — I don't see a lot of need to take action," Rosengren told Bloomberg Television.

The U.S. economy is in a "pretty good spot right now, and there are costs to easing at times that you don't need to ease," Rosengren said.

For example, lower interest rates could lead to financial stability risks, as households and businesses may see an incentive to take out more credit, he said. That increased leverage could put them in "much worse shape" if the U.S. does see a downturn, Rosengren said.

The Boston Fed president was one of two Federal Open Market Committee officials who dissented on the FOMC's July 31 decision to cut the benchmark federal funds rate by 25 basis points. Investors expect the Fed to cut rates again at the next FOMC meeting, which will take place Sept. 17 and 18.

Fed Chairman Jerome Powell has left the door open to more rate cuts this year, but Rosengren's comments suggest Powell could face some dissent again if the Fed eases policy at the September meeting.

Asked about the recent upheaval in U.S. bond markets, which last week saw yields for 10-year and 2-year Treasurys briefly invert for the first time since the crisis, Rosengren said he is paying attention to the message that fixed-income investors may be sending.

But he also said a major reason for the recent plunge in 10-year Treasury yields may be negative interest rates in other countries. That, combined with an outlook for weaker global growth, may be pushing more investors into U.S. assets and holding down U.S. yields, he said.

"The cure for global weakness is for countries around the world to expand either with fiscal or monetary policy in their own countries, rather than just [relying on] the United States to be doing the easing," he said.