Eric Rosengren hints at gradual rise in rates

The slowdown in Asia and euro zone will have an impact on US prices. If the slowdown in China, Japan, and the European Union (EU) further continues, then US prices could come under more pressure, according to Boston Fed President Eric Rosengren.

While expressing his view that if inflation is low, then interest rates would also be fairly low, Rosengren said the US Federal Reserve probably may gradually increase interest rates.

Low inflation and slower economic growth will make the US government to keep the policies stringent. Rosengren opines that more modest tightening cycle than it used to be in the past. Federal Reserve may opt for a gradual rise in interest rates. It might happen now or later after a few months, he said. However, Rosengren downplayed the timing of the decision by US Fed.

The ongoing economy risks including drop in oil prices keep inflation lower than two percent, which Fed's objective. Rosengren further added that because of the reforms taken place afterthe economic crisis in 2008-09, the probability of a pending US recession may not be very high.

Below target inflation is always a reason to keep interest rates at a low level.

Eric Rosengren doesn't have a vote on Fed's policy committee until 2016. "There are very good reasons to expect a much more gradual normalization process than occurred in the previous two tightening cycles. This more modest tightening path is both necessary and appropriate," said Rosengren.

The latest market crash particularly the resurfacing sell-off on Tuesday was mostly triggered by renewed fears about the slowdown in China's economy growth. This would further keep US inflation below the target level.

The ongoing turmoil in the Chinese economy and the European Union has literally given a pause to the US government. Even investors also give 32 percent chance to the interest rate hike this month.

The previous monetary tightening cycles took place in 1994 and 2004. This time too, the Fed could keep interest rates lower only.

While addressing Forecasters Club of New York, Rosengren said Fed's target of inflation rate was 1.2 percent and it used to be two percent for few years.

The slowdown in Europe and Asian economies, weaker commodities markets and turmoil across the global stock markets influence the US economic growth to some extent only, he said. The jobless rate is hovering at 5.3 percent and this may not continue to fall if one considers all the adverse conditions in the global economy.

In fact these may not boost wages in the US market as well, Rosengren said.