Dallas Federal Reserve President Richard Fisher said on Friday he is fairly comfortable with the
inflation outlook but would "aggressively" argue for further interest rate increases if inflation does not ebb as expected.
"No central banker can ever be smug about containing the risk of inflation, but I am pleased with the current direction of inflationary impulses," Fisher said in a speech to the Rotary Club of the Park Cities.
"If (rate) increases are needed, I would aggressively advocate for them. But for now I am as comfortable with the inflationary outlook as a prudent central banker can be," he said.
The Fed has kept benchmark interest rates at 5.25% at its past five meetings, after last raising rates in June.
Fisher said he is confident the Fed can accommodate a growth rate that can bring core inflation back down below 2% as offsetting inflationary and deflationary forces are balanced.
"I will rest a heck of a lot easier when we get the core rate down well below 2% and keep it there," he said.
In 2006 the core personal consumption expenditures price index, the Fed's favorite inflation measure, rose by 2.2%, above the central bank's comfort zone.
Fisher said that his broad view on the U.S. economy had not changed since his last speech on Dec. 19.
Strong fourth quarter U.S. economic growth of 3.5% is likely to be revised down to about 3%, and 2007 growth could continue at a similar level, he said.
Fisher is not a voting member of the monetary policy-setting Federal Open Market Committee in 2007.
He cited "deflationary tailwinds" helping the Fed at the moment, including the lagged effect of the bank's 17 rate increases that ended in mid-2006. Moderating energy prices
would also help, Fisher said.
At the same time, substantial demand for skilled and semi-skilled labor is driving up wages in some sectors, and rapid growth overseas is limiting the ability of U.S. business
to tap into cheap inputs and labor.
Recent productivity gains have been "less than we had expected," Fisher added.
Separately, Federal Reserve Bank of Cleveland President Sandra Pianalto said on Friday the
inverted yield curve -- higher interest rates on shorter-maturity securities than on longer-dated ones -- is probably not a portent of recession.
"I believe that this is one of those periods of times where that's not going to be the case," she said in response to audience questions after a speech.