If you are overly worried about a quick and rapid interest rate hike cycle from the Federal Reserve, there is at least one more Fed speech giving you some hope that this is not the case. Eric Rosengren, President and Chief Executive Officer of the Federal Reserve Bank of Boston, was speaking at the Forecasters Club of New York.

Rosengren sees the future trajectory of interest rate increases, at least by his own views, as a more gradual normalization process, compared to the last two tightening cycles. The years 2004 and 1994 were the last big rate hike cycles.

Rosengren’s view, which may not be universally shared by other Fed presidents, is that a more modest tightening path is now necessary and appropriate. One key point is that inflation is lower and real gross domestic product (GDP) growth is slower than it was before the prior rate hike cycles.

Real GDP was shown to have grown by only 2.7% over the past four quarters. Real GDP was averaging 3.4% at the start of the 1994 tightening cycle and at 4.2% at the start of the 2004 cycle.

There remains a consistent shortfall on the 2% inflation objective. Rosengren’s forecasts for inflation were said to “largely rest on whether he thinks the economy will continue to experience growth above potential and whether the subsequent declining labor market slack will be sufficient to raise his confidence that inflation will return to 2 percent in a reasonable time frame.”

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While the widely reported unemployment rate (U-3) is currently lower than at the start of the tightening cycles of 1994 and 2004, the broader measurement (U-6), including those who are working part-time for economic reasons and also those who are only marginally attached to the workforce, is not particularly low, compared with prior tightening cycle-starts.

Another observation from Rosengren was that the Fed policymakers expect a gradual tightening cycle via their published economic projections. He even noted that the implied path of fed funds rate hikes currently looks to be only increasing at roughly half the pace than the path taken in 2004.

Rosengren’s combined direct quotes said:

If one believes the broader measure of unemployment better captures slack in the economy, then labor markets would not be viewed as unusually tight for commencing the tightening cycle. This potential additional slack would also be a reason for policymakers to follow a more modest interest rate path at the beginning of a tightening cycle.

In my own view, given current and forecast conditions, not only is the pace likely to be gradual, but the federal funds rate in the longer run may be lower than in previous tightening cycles.

The more gradual tightening cycle should enable monetary policymakers to gauge how tight labor markets can be while maintaining stable prices. The very low inflation rates here and abroad make it a particularly good time to not be too tied to imprecise measures of full employment.

If investors need a reminder about Rosengren’s status on the Federal Open Market Committee (FOMC), he is listed as one of the five alternate members. If he remains in his position, Rosengren will get to be a voting member of the committee starting in 2016.

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