(Reuters) - The U.S. Federal Reserve should “proceed cautiously” with interest rate increases, keeping a “keen eye on the data” so as to raise rates far enough to prevent overheating but not so far that it short-circuits economic growth, Atlanta Fed President Raphael Bostic said on Thursday.
“I don’t think we are too far from a neutral policy, and neutral is where we want to be,” Bostic told the Global Interdependence Center in Madrid, Spain. “I am inclined to think that a tentative approach as we proceed and get closer and closer to neutral would be appropriate.”
The Fed raised rates at its September meeting, and policymakers mapped out an optimistic view of unemployment likely to stay at record lows, growth continuing, and inflation near the central bank’s 2 percent target. The Fed next meets in mid-December, and is widely expected to raise interest rates then.
Bostic’s comments, in prepared remarks and in an extended question and answer session afterward, suggest that he sees the Fed within just a couple rate hikes of his estimate of a “neutral” range of 2.5 percent to 3.5 percent.
With unemployment at 3.7 percent and inflation at or near the Fed’s 2-percent goal, conditions warrant the “final steps” in adopting a neutral stance of monetary policy, he said.
Once the Fed gets to that neutral range, he said, the Fed will have to take cues from the economic data on what to do next. If economic data show clearer signs of overheating, he said, he is prepared to support a more aggressive approach.
Bostic said he is keeping a close eye on rising delinquencies in consumer credit, even though overall the financial system is healthy. He also said he is watching for any impact on prices or inflation expectations from tariffs, saying that so far he has not seen any signs of that.
Reporting by Ann Saphir; Editing by Chizu Nomiyama