February 2, 2018 / 8:27 PM / 5 months ago

Fed's Williams says more rate hikes needed amid healthy growth

SAN FRANCISCO, Feb 2 (Reuters) - The U.S. Federal Reserve should continue to raise interest rates to prevent an overheating in an economy buoyed by strong financial conditions, global growth and the Trump administration’s tax cuts, a top policymaker said Friday.

But San Francisco Federal Reserve Bank President John Williams, in his first public comments since the Fed left rates unchanged after its policy-setting meeting this week, made it clear he is not advocating more than the three rate hikes the Fed has forecast for 2018.

“The expansion is proceeding at a good pace, unemployment is low, and inflation is finally headed in the right direction again,” said Williams, who votes this year on Fed policy and is said to be under consideration for the position of vice chair under incoming Fed Chair Jerome Powell. “But at the moment, while I’m buoyed by the optimism, I don’t see an economy at risk of shifting into overdrive.”

Economic data has strengthened over the last month or two, with a report earlier Friday showing hourly wages rose in January at their fastest pace in more than eight years, and the Atlanta Fed’s GDPNow model spitting out a searing estimate Thursday of 5.4 percent growth for the current quarter. Unemployment is at 4.1 percent, lower than most economists think is sustainable in the long run.

Many Fed officials, including Williams, see inflation picking up this year after several years when it lingered below the Fed’s 2-percent target. On Friday Williams said wage growth has been “ratcheting up” and is likely to intensify, helping lift inflation along with it.

Still, Williams, in his prepared remarks to the Financial Women of San Francisco, said he was pleased by what he termed “healthy growth,” but is neither surprised nor concerned.

“I have boosted my growth forecasts for this year, but I don’t see an economy that’s fundamentally shifted gear,” he said. “Given that the economy’s performing almost exactly as expected, you can expect policymakers to do the same.”

Markets are currently pricing in the same three rate hikes this year that the Fed has forecast. (Reporting by Ann Saphir Editing by Chizu Nomiyama)

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