Delaying interest rate hike risks sustainability of expansion, Fed's Rosengren says

The case for an immediate interest rate hike has become even more compelling when one considers the implications for the "sustainability" of the current economic expansion of the current policy, a top US central bank official said.

Based on current forecasts, the US unemployment rate was projected to fall below 4.5% by 2019 which risked "overheating" the economy, the president of the Federal Reserve bank of Boston, Eric Rosengren, said in a statement explaining the reasoning behind his decision to dissent from the Federal Reserve's decision on 21 September to stay put on policy.

"Unemployment this low may well have the desirable effect of bringing more workers into the labor force – but, unfortunately, only temporarily. Historical experience suggests it also risks overheating the economy, the effects of which include heightened pressure on inflation and potentially increasing financial-market imbalances," he said.

"Gently backing the economy away from such imbalances has proven to be very difficult in the past."

Furthermore, Rosengren pointed out that in his opinion monetary policy would still be accommodative even after a gradual increase in interest rates, thus continuing to support the labour market.

"This would allow policymakers to continue testing to find the level of full employment – but gently, not sharply.

"As a result I am arguing for modest, gradual tightening now, out of concern that not doing so today will put the recovery’s duration and sustainability at greater risk, by generating the sorts of significant imbalances that historically have led to a recession."

As of 1553 BST the yield on the benchmark 10-year US Treasury note was higher by one basis point to 1.62%.