The Federal Reserve should continue raising its interest rate gradually since the outlook of the U.S. economy could be favorable, a senior Fed official said Thursday.
Randal Quarles, the Fed's vice chairman for supervision, made a speech at the Economic Club of New York on Thursday, saying that he was optimistic about the U.S. economy due to a tight labor market and the positive outlook in productivity.
"I think there is some potential for labor force participation to move up, perhaps as workers respond to the incentives of plentiful job opportunities and higher wages," said Quarles, "thereby adding to the productive capacity of the economy and pushing back the constraints on growth."
Quarles also said that there were multiple reasons that productivity growth could shake off some of its recent "torpidity", citing favorable investment indicators, high business optimism and solid capital expenditure plans.
Marking himself as a "techno-enthusiast", Quarles also noted that a more widespread application of new technologies such as 5G communications, artificial intelligence, machine learning and 3D printing could also support economic growth.
"Given that the economy has performed fundamentally as I expected at the outset of this year," said Quarles, "the right strategy is to maintain the gradual course that I have thought appropriate for some time now."
However, Quarles suggested that since the overheating risks could be balanced by the outlook of stronger growth, the Fed doesn't need to raise rates too fast.
"There is enough reason to think that the productive capacity of our economy might be increasing so that we should not feel compelled to accelerate our pace," Quarles said in his speech.
Quarles also suggested that the Fed should pay attention to other indicators that reflect tightness and overheating in the U.S. economy.
"The relationship between inflation and the tightness of the economy has gotten weaker," said Quarles, "a problem does arise if the Fed remains reliant on inflation as our only gauge of the economy's position relative to its potential."
"There are other signs of potential besides inflation, including, but not limited to, direct measures of labor utilization or indications of shortages and bottlenecks in production."
The policy meeting on Wednesday signaled that the central bank would continue to raise interest rate gradually and it is largely expected to hike it once more before year-end.