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Boston Fed president advocates rate hike amid 'very tight' labor markets

Failure to respond to "very tight" labor markets as rates remain negative in real terms could potentially risk cutting the economic recovery short, Federal Reserve Bank of Boston President and CEO Eric Rosengren said Oct. 7.

In his speech at the 84th International Atlantic Economic Conference, Rosengren said, "prudent risk management would argue for the continued gradual removal of monetary policy accommodation in order to minimize the risk of outcomes that might prematurely shorten the current economic recovery."

He further added that the current environment had given monetary policymakers a chance to take a more patient approach to removing accommodation — an approach that, he said, has many benefits, such as a potentially long-sustained economic recovery.

Rosengren also said that while it is important for the monetary policy to be "data dependent," we should not be "too sensitive" to incoming data. "While underlying economic relationships can and do change, one should not be too quick to assume that relationships are unhinged as a result of expectation errors for 'high frequency' data."

As reported by the U.S. Labor Department on Oct. 6, U.S. nonfarm payroll employment decreased by 33,000 in September, and the unemployment rate declined to 4.2% from 4.4% in the previous month.