Touting the strength of the U.S. economy, which he noted was “in the best shape that it has been since the crisis,” Federal Reserve Vice Chairman for Supervision Randal Quarles today signaled that the Fed will continue gradually increasing the target federal funds rate in the months ahead.
“I anticipate further gradual increases in the policy rate will be appropriate to both sustain a healthy labor market and stabilize inflation around our 2 percent objective,” Quarles said. Addressing concerns over lagging inflation — which came in at 1.7 percent in December, below the Fed’s target — he expressed his view that “the current shortfall in inflation from target is most likely due to transitory factors that will fade through 2018, pushing inflation back up to target,” adding that “a deviation from our target of a few tenths of one percentage point, especially one I expect to fade, does not cause me great concern.”
Quarles noted that overall, economic conditions remain strong, with the labor market posting strong gains and GDP growth increasing at just under three percent over the last three quarters of 2017. “Against this economic backdrop . . . I view it as appropriate that monetary policy should continue to be gradually normalized,” he said.