US interest rates are likely to rise further this year to keep inflation in check as labor market strength fuels income growth, Federal Reserve officials said.
Fed Governor Susan Bies and Regional Fed bank presidents Anthony Santomero of Philadelphia, Gary Stern of Minneapolis, Jeffrey Lacker of Richmond, Virginia, and Sandra Pianalto of Cleveland said in separate speeches on Tuesday rates need to increase as long as the US economy expands with steady employment gains.
"It is prudent to move the federal funds rate up to a position that gives me more confidence that monetary policy is no longer accommodative," Pianalto, 50, told the Association for Corporate Growth in Pittsburgh. "I would prefer this strategy to finding out the hard way" that inflation is on the rise.
The US central bank raised interest rates five times in as many meetings since June, lifting the benchmark overnight lending rate to 2.25 percent from 1 percent. The Fed has moved in quarter-point steps, in keeping with a phrase in policy statements to remove its low-rate policy at a "measured" pace.
"The challenge is for us to move from an expansionary policy to a more neutral policy in a manner that allows the economy to grow, but does not allow inflation to accelerate," Santomero said after a speech to the Greater Philadelphia Chamber of Commerce.
Santomero forecast economic growth of 3.5 percent to 4 percent this year, employment gains of 150,000 to 200,000 a month, and "relatively stable" prices.
The Fed's policy-making Open Market Committee next meets beginning next month. Bies, Stern and Santomero are voting members this year.
"The Federal Reserve can continue to remove its policy accommodation at a measured pace, consistent with its commitment to maintain price stability as a necessary condition for maximum sustainable economic growth," Bies, 57, said in a speech to financial executives in Baltimore, Fed officials indicated over the past few weeks they see little immediate inflation threat. Their preferred price measure, the personal consumption expenditures index, minus food and energy, rose 1.5 percent for the 12 months ending November.
Both Stern and Pianalto said that rate meets their definition of price stability.
"I don't think there is a piece of data or a set of data that says the dynamics have changed dramatically in the past few weeks," Santomero said in an interview.
Richmond Fed bank president Jeffrey Lacker, 49, told reporters after a North Carolina speech yesterday that "inflation expectations remain contained."
Still, Fed officials cite risks of rising prices, including the possibility that higher energy and commodity costs are passed through to finished goods, or that wages begin to rise as productivity rates decrease, forcing companies to hire more workers to meet existing demand.