Federal Reserve Bank of Boston President Eric Rosengren's more robust call to raise interest rates — warning that inaction could overheat the economy — pushed stocks to their lowest point in two months on Friday.
The Dow Jones Industrial Average closed down nearly 400 points, giving up most of the gains of the summer after Britain's vote to exit the European Union. In a day of steady downhill trading, the Dow closed at 18,085, losing 2.13 percent.
Rosengren is a voting member of the Federal Open Market Committee, the central bank group that sets rates to guide the economy.
While he previously advocated using low rates to combat unemployment, more recently Rosengren has publicly worried that leaving rates this low for so long risks creating a bubble, particularly in the commercial real-estate market.
Speaking in Quincy on Friday, he said there was "a reasonable case" for a measured increase, largely reiterating a case he made in a speech in China on Aug. 31.
"A failure to continue on the path of gradual removal of accommodation could shorten, rather than lengthen, the duration of this recovery," Rosengren told the South Shore Chamber of Commerce.
Rosengren did not say whether he would prefer to increase a key benchmark rate from 0.25 percent to 0.5 percent later this month or at one of Fed's scheduled meetings in November and December. But investors grew wary that it could be sooner rather than later, triggering the sell-off.
Still, some economists were skeptical that the Fed will raise rates for the first time since last December at the Sept. 20-21 meeting. "The recent data performance has not supported the September move," said Sam Bullard, a senior economist with Wells Fargo Securities. While US employers are adding jobs at a steady clip, wage increases have lagged.
Central bankers also seem to disagree about the timing for a benchmark rate increase, said Nariman Behravesh, chief economist at IHS Inc., a forecasting firm in Lexington. "The committee is very divided, there's no clear consensus," he said.
On Friday, Federal Reserve Governor Daniel Tarullo, also a voting member of the rate-setting committee, said during a television interview that he would like to see a sustained increase in inflation before a rate increase, although he didn't rule out one this year.
Central bankers have also been wary of raising rates so close to a presidential election for fear of being perceived as influencing the results, Behravesh said.
Still, Rosengren's speech illustrated that Fed members seem to be inching toward a rate increase.
Despite global economic turbulence, the US economy has proven resilient, Rosengren said. He expects US economic growth to pick up in the second half of 2016, and the labor market to tighten further.
Keeping rates too low may also fuel a commercial real-estate boom as investors from around the world chase higher returns by putting their money into apartments and office buildings, Rosengren warned.
Deirdre Fernandes can be reached at email@example.com.