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Rosengren cites inflation, financial instability as potential risks in 2020

While generally sanguine on the state of the economy, Federal Reserve Bank of Boston President Eric Rosengren raised a couple of issues Jan. 13 that could threaten Fed officials' rosy economic outlooks for 2020.

Amid a backdrop of historically low unemployment, rising wages and inflation levels finally expected to approach 2%, economists project what Rosengren described at a conference in Hartford, Conn. as "another year of good economic outcomes" for 2020.

In an interview with Yahoo Finance following his speech, Rosengren said the upbeat outlook represents a "soft landing," which means the Fed may not have to step in to raise or lower interest rates in the near future.

Yet, Rosengren, who voted against the Fed's three rate cuts in 2019, said that there are certain risks related to inflation and financial stability that could derail those projections if the economy grows "faster than expected."

"Central bankers do not have much historical experience with extended periods where interest rates are running below the estimated equilibrium level while unemployment levels are, simultaneously, historically low," Rosengren said in his prepared remarks for the event. "So we want to be alert to any potential risks emerging."

Those risks could include situations where wages and inflation grow faster than expected as a result of the labor market tightening to "unsustainable levels," Rosengren said. He later added that low interest rates may be pushing investors to take on more risk in search of yield, leading them to pour money into asset classes like real estate.

If those risks are contained, Rosengren expects 2020 to fall in line with economists' expectations for the year. However, the Boston Fed president still plans to monitor those concerns closely in the coming months.

"The world rarely unfolds exactly as forecast," Rosengren said.