Fed's Williams argues for earlier rate hike

The Federal Reserve hiking interest rates "a bit earlier" allows the U.S. central bank to increase rates more gradually, a top Federal Reserve official said Tuesday. (Tweet this)

Inflation shooting above the Fed's 2 percent target would force a more "dramatic" rate hike, San Francisco Federal Reserve President John Williams said Tuesday in prepared remarks before the Harvard Club of New York. Market watchers have eyed indications of when the Fed may abandon its near-zero interest rate policy.

San Francisco Federal Reserve President John Williams
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San Francisco Federal Reserve President John Williams

The U.S. job market has shown "good momentum" for the rest of the year, Williams told CNBC on Monday. On Tuesday, he reiterated his belief that the U.S. economy looks to be strengthening and that inflation will move toward 2 percent.

Williams—a voting member of the U.S. central bank's policy making committee—stressed Monday on CNBC that economic data including employment and inflation will guide the Fed's decision to hike interest rates.

Read MoreFed's Williams: Jobs report shows 'good momentum'

The U.S. economy created 223,000 jobs in April and the unemployment rate reached a seven-year low of 5.4 percent, the Labor Department announced last week.

Further emphasizing the Fed's logic, Williams unveiled a T-shirt that read "Monetary Policy It's Data Dependent" during the Monday interview on CNBC's "Squawk on the Street."

— CNBC's Everett Rosenfeld contributed to this report