Economic weakness in the first quarter shows the U.S. isn'tready for an interest-rate increase, said Eric Rosengren, presidentof the Federal Reserve Bank of Boston.

Rosengren called the March jobs report “disappointing” and saidinflation remains “stubbornly below” the central bank's 2 percenttarget.

“Incoming data would need to improve to fully satisfy thecommittee's two conditions for starting to raise rates,” Rosengren,who doesn't vote this year on the Fed's policy-making panel, saidin the text of a speech Thursday in London.

The Federal Open Market Committee (FOMC) said after its Marchmeeting that it would wait for further improvement in the labormarket and signs that inflation will move back toward 2 percentbefore increasing its benchmark federal funds rate for the firsttime in almost a decade.

A Fed report released Wednesday in Washington showed the economygrew at a “modest” or “moderate” pace in eight of the centralbank's 12 districts.

Employers added 126,000 jobs in March, the smallest gain sinceDecember 2013. The unemployment rate was unchanged at 5.5percent.

Rosengren, 57, focused much of his remarks on the implicationsof changes to the FOMC's forecasts for long-term interest rates.The midpoint for the panel's long-run estimate of the federal fundsrate fell to 3.75 percent in March, from 4.25 percent in June2012.

Rate Path

Rosengren said that drop is one reason why the path ofinterest-rate increases after liftoff may not need to follow assteep a course as in previous recoveries. Most officials forecastthe Fed will start to raise rates this year.

He also argued that a lower long-run rate may justify setting ahigher inflation goal to help avoid returning to near-zero rateswhen the economy slows again.

“A higher inflation target would mean a higher longer-run policyrate, which brings with it a lower chance of hitting the zero lowerbound,” he said.

Rosengren added that Fed policy makers had also lowered theirestimate of long-run unemployment. The central tendency of thepanel's forecasts—which eliminates the highest three and lowestthree—dropped in March to a range of 5.0 percent to 5.2 percent. Ithad been 5.2 percent to 6 percent in June 2012.

“The absence of wage and price pressure is consistent with someslack still remaining in the labor markets, even with anunemployment rate that has fallen to 5.5 percent,” he said. He saidhis own estimate of the long-run rate is 5 percent.

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