With the U.S. economy now at or near the Federal Reserve's goals of full employment and 2-per cent inflation, the U.S. central bank should continue raising interest rates until they are no longer stimulating growth, a Fed policymaker said on Friday.
"Our models and my forecast had three moves for this year," Atlanta Federal Reserve Bank President Raphael Bostic told reporters after a speech at the Knoxville Economic Forum, referring to interest rate hikes.
There is a good deal of uncertainty, he added, and the Fed may need one more or one less hike than he currently forecasts, depending on the strength of the economy.
The Fed should continue to move rates up to a neutral level of between 2.25 per cent to 2.75 per cent, he said.
"Once we get to neutral I think we should step back and take a look and see how the economy is performing," he said. "If there are signs that the economy is overheating, then we act to tighten a little bit, but if not, I would be comfortable staying at neutral until we see those signs."
That point is "at least a year away from now and possibly more," and a lot could happen in between to change the outlook, he said.
The Fed raised interest rates earlier this week and forecast two more rate hikes for 2018 and three each year after that, highlighting its growing confidence that tax cuts and government spending will boost the economy and inflation.
Bostic voted for the rate increase and on Friday noted upside risks to economic growth and labor costs, and said that for the first time in many years inflation runs a risk of rising "somewhat above" the Fed's 2-per cent goal.
He also moderated his earlier sharp warnings about the negative impact of the Trump administration's steel and aluminum tariffs, noting that they are much more narrow in scope than initially thought. "The nature of the tariff moderated, and so my tone moderated," he said, adding that he is taking a "wait and see" approach on assessing the administration's freshly proposed China tariffs.
Bostic said he sees the U.S. economy growing at about 2.5 per cent to 2.75 per cent this year, potentially more since he has only conservatively estimated the boost from Trump's tax overhaul and a budget that increases government spending.
"I spend a lot of time and my staff spends a lot of time looking for overheat... We want to avoid that if we possibly can," he said.
But though he expects inflation to continue to firm, and unemployment to fall further, "We're just not seeing the signs that would suggest that overheating is on the horizon: inflation is not showing signs of spiking, wages are not showing signs of spiking in a dramatic way, and job growth is still happening pretty robustly."
"For us I think all those things would suggest we don't need to be accommodative in policy," he said.