Without further gradual increases in interest rates, one might be concerned that the unemployment rate could drift below its long‐run sustainable level - and as a result, inflation could eventually exceed the Fed's 2 percent target. a still gradual but somewhat more regular increase in the federal funds rate will be warranted.
In remarks to business leaders in Hartford, Connecticut, the president of the Federal Reserve bank of Boston, Eric Rosengren, explained that: "economic circumstances have evolved and now imply the need for a different stance of monetary policy".
Rosengren judged that the Fed would have met both its mandate for full employment by the end of 2017 and that both headline and core inflation would be at 2.0% by then.
Rosengren, who does not vote on the Fed's policy-setting committee this year, was long considered a dove, supporting low rates to boost employment even at the risk of some inflation.
Many outside experts are calling on the Fed to speed up the pace of rate hikes.
That pace, which is faster than markets now expect, "seems reasonable if we continue to see real GDP growing faster than the so-called "potential" rate", Rosengren said.
In their latest SEP, published on 14 December, rate-setters at the Fed indicated that as many three rate interest hikes were expected in 2017.
While the growth outlook does not require the Fed to raise rates at every Fed policy-setting meeting, as it did during the last tightening cycle from 2004 to 2006, the Fed does need to reduce monetary policy accommodation, he said.
On a shorter-term view, he expects gradual interest rate increases to continue while the central bank should take more of a background role moving forward with the focus shifting to secular and structural factors.