With the U.S. economy at full employment and inflation moving back up toward the central bank's goal of 2 percent, the Federal Reserve could raise borrowing costs again as soon as next month, San Francisco Federal Reserve Bank President John Williams signaled on Tuesday.
"In my view, a rate increase is very much on the table for serious consideration at our March meeting," Williams said in remarks prepared for delivery to the Santa Cruz Chamber of Commerce.
"We need to gradually ease our foot off the gas in order to avoid a 'too hot' economy that in the end isn’t sustainable."
The Fed lifted interest rates last December for only the second time since the financial crisis, and last month left them unchanged to give the labor market more room to improve.
With unemployment now at 4.8 percent, a level many economists say is consistent with full employment, and with inflation only a few tenths of a percentage point below the Fed's 2- percent goal, more Fed officials are calling for further rate hikes sooner than later.
Keeping short-term rates where they are, between 0.5 percent and 0.75 percent, could encourage faster economic growth than can be sustained, leading to rising inflation that the Fed would need to combat with aggressive rate hikes that historically have tipped growing economies into recession.
"Our goal is to attain what I like to call a 'Goldilocks economy' – an economy that doesn’t run too hot or too cold," Williams said, adding that he supports raising rates gradually in order to sustain current economic health.
Though Williams does not vote this year on monetary policy, he takes part in the Fed's regular policy-setting meetings and his views and research are influential among his colleagues.