There’s a case for gradual rate hikes according to Boston Fed President Eric Rosengren who believes that waiting too long to begin raising rates risks some asset markets like commercial real estate becoming “too ebullient.”
“My personal view, based on data that we have received to date, is that a reasonable case can be made for continuing to pursue a gradual normalization of monetary policy,” Rosengren stated Friday in a breakfast meeting with the South Shore Chamber of Commerce.
Rosengren, who is a voting member of the Fed policy committee this year, did not specify when the Fed should begin to raise rates. The Fed has three meetings left this year, and most economists believe it will hold off on raising rates until December if they do move to increase them this year.
Rosengren pointed out that commercial real estate prices adjusted for inflation “have risen quite rapidly over the past five years, especially for multifamily properties.”
“Because commercial real estate is widely held in the portfolios of leveraged institutions, commercial real estate cycles can amplify the impact of economic downturns as financial institutions need to write down the value of loans and cut back on lending to maintain their capital ratios,” he said.
According to Rosengren, this means that the risks to the economy are becoming balanced, or “two-sided,” he said. The last time the Fed described risks as being balanced was last December when they chose to raise rates by a quarter of a percentage point.