Fed 'at or near' goals, further rate hikes needed: Bostic

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[March 23, 2018]  KNOXVILLE, Tenn. (Reuters) - With the U.S. economy now at or near the Federal Reserve's goals of full employment and 2-percent inflation, the U.S. central bank should continue raising interest rates gradually over the next couple of years, a Fed policymaker said on Friday.

President of the Federal Reserve Bank of Atlanta, Raphael W. Bostic appears in this handout photo obtained by Reuters October 6, 2017. Federal Reserve Bank of Atlanta/Handout via REUTERS/File Photo

"If the economy evolves roughly as I suspect, I will likely support further increases over the course of the year," Atlanta Federal Reserve Bank President Raphael Bostic said in remarks prepared for delivery to the Knoxville Economic Forum.

Six-month core inflation is now at 2 percent, and unemployment of 4.1 percent is at or below precrisis levels; those two data points, he said, "give me confidence we are at or near the (Fed's) sustainable employment and inflation objectives."

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 said it made sense, given the outlook. He added, however, that though labor markets are "not yet overheated," there are risks to the upside on labor costs. There are also upside risks on inflation, he said, and while it is likely to remain calm, for the first time in many years runs a risk of rising "somewhat above" the Fed's 2-percent goal.

Not all in Bostic's forecast was rosy. The threat of tariffs, and potential retaliation by trading partners, poses as much of an upside risk to the economy as fiscal stimulus does to the upside, he said Friday.

And he said it is important to raise rates only gradually toward a neutral level of perhaps 2.25 percent to 2.75 percent, particularly as the outlook for inflation is uncertain and the effects of reducing the Fed's massive balance sheet are still being calibrated.

"With the economy operating near its potential and inflation finally approaching the long-run target, it is appropriate, in my opinion, for monetary policy to be moving toward a more neutral stance," he said.

(Reporting by Ann Saphir; Editing by Chizu Nomiyama)

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