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Federal Reserve's Rosengren says cutting rates could worsen next downturn

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Boston Federal Reserve Bank President Eric Rosengren on Monday signaled no willingness to support further interest rate cuts, saying that US economic conditions are still good and that easing policy could encourage a worrying debt build-up.

[NEW YORK] Boston Federal Reserve Bank President Eric Rosengren on Monday signaled no willingness to support further interest rate cuts, saying that US economic conditions are still good and that easing policy could encourage a worrying debt build-up.

"It is a bigger risk to encourage people to take on too much more risk at this time," he said in an interview broadcast on Bloomberg Television, adding that doing so could worsen the next downturn and leave the Federal Reserve with little ammunition to encourage additional spending when it is needed.

"Global conditions are weak. So I'm not saying there aren't circumstances in which I would be willing to ease. I just want to see evidence that we are actually going into something that's more of a slowdown."

Mr Rosengren was one of two dissenting votes at the US central bank on its decision last month to cut borrowing costs for the first time since 2008. Now, he said, he does not currently see a need for any further action.

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Markets overwhelmingly expect the Fed to cut rates again at its Sept 17-18 policy meeting from the current 2.00 per cent -2.25 per cent target. Meanwhile, Federal Reserve Chairman Jerome Powell is slated to deliver a closely watched speech on Friday at a central bank conclave in Jackson Hole, Wyoming, where he is likely to weigh in on policy and his economic outlook.

Mr Rosengren said unemployment trends are good and that signs point to inflation rising to the Fed's 2 per cent-a-year target, with the economy growing around a healthy 2 per cent rate. US monetary and fiscal policy are already "accommodative," he said, meaning they support further growth.

Investors have been worrying that relatively low long-term US Treasury bond yields point to recession risks. Mr Rosengren said those bond prices reflect global weakness, a real problem, but one that cannot be corrected by lowering US borrowing costs.

Policymakers in China and Britain, for instance, will have to respond to economic risks related to protests in Hong Kong and the UK's exit from the European Union.

Mr Rosengren said disagreeing with the Fed's policy path has not been easy.

"It's not easy," he said. "It's a consensus-driven organisation, and it should be. And so you should only dissent if you strongly disagree with where policy's going at the time."

REUTERS