(Reuters) - Buoyed by stimulative fiscal policy and “highly accommodative” monetary policy, the U.S. economy may grow faster than expected, tightening labour markets and putting upward pressure on inflation, a U.S. central banker said on Thursday.
“Risks to the outlook appear to be predominately to the upside,” Kansas City Federal Reserve President Esther George said in remarks prepared for delivery to a bank-sponsored Economic Forum in Lincoln, Nebraska.
Given the economic momentum, the Federal Reserve should continue to raise interest rates and “carefully calibrate its policy to lean against a potential buildup of inflationary pressure or financial market imbalances.”
George is a reliable hawk at the U.S. central bank, and in characterizing risks as to the “upside” she is subtly differentiating herself from the core at the Fed, who have termed risks as “roughly balanced.”
But her remarks come as support for a potentially faster pace of rate hikes appears to be building among Fed officials, including the influential chief of the New York Fed.
Such faster rate hikes could act to restrain the boost to consumer and business spending that many Fed officials, including George, see as the likely result of the Trump administration’s recent tax overhaul.
On Thursday, George forecast moderate economic growth ahead would help tighten labour markets and put upward pressure on inflation, which she said could reach the Fed’s 2-percent goal this year. Inflation has undershot that goal for years, and though most Fed officials see it rising this year, few expect it to reach the target by year’s end.
The Fed is widely expected to raise rates when policymakers next meet March 20-21; markets currently expect two more rate hikes by year end, exactly the pace the Fed forecast when it last released projections in December.
Reporting by Ann Saphir; editing by Diane Craft