MNI POLICY: Fed's Quarles: Further Rate Hikes May Be Needed

By Jean Yung

     WASHINGTON (MNI) - Federal Reserve Governor Randy Quarles said Friday that

higher interest rates may be appropriate at some point even though he is content

to patiently watch how data evolves for now. 

     "I am very comfortable remaining patient at this point and monitoring the

incoming data. That said, my sense is that further increases in the policy rate

may be necessary at some point, a stance I believe is consistent with my

optimistic view of the economy's growth potential and momentum," he said in a

speech prepared for a financial markets conference in New York. 

     His estimate of the neutral policy rate remains "somewhat north of where we

are now," he added, citing gains in investment, productivity and labor force

participation over the past year. 

     However he conceded that some weakness in recent retail sales and

employment data indicates growth may have slowed "at least temporarily" and

requires further observation. 

     Following are other major takeaways from his speech: 

     --Core PCE inflation at 1.8% is "roughly consistent" with the Fed's 2%

objective though overall pressures are "muted." 

     --The sharp slowdown in retail sales in December suggested a slowing of

consumption but seems "rather inconsistent with a number of other indicators,"

including the continued strength of the labor market and wage gains in recent

months.

     --The small gain in February payrolls "seems a bit odd" and is "another

reason to continue patiently watching the data to see how economic conditions

evolve." 

     --He's encouraged by a rise in business investment, which should see

further gains supported by profit growth, incentives in the tax bill, and a

generally favorable business environment.

     --Labor productivity growth, which saw a post-crisis high last year, could

continue. 

     --There is no need for a countercyclical capital buffer now as risks are

within their normal range. 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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