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U.S. Fed official urges more cautious approach to rate hikes

Xinhua, June 3, 2016 Adjust font size:

A top Federal Reserve official on Thursday urged his fellow policymakers to take a more cautious approach to further increase interest rates, as he sees further scope for improvement in the U.S. labor market.

In an interview with Bloomberg TV, Fed governor Daniel Tarullo said those who favor gradual rate hikes want to start early to raise rates "in order to avoid any problems with inflation later on", but he is in no hurry to do so.

"The second approach, which I've been a little bit more inclined towards, is to say, gee, it's not clear what full employment is. We're in a global environment that is not inflationary," he said.

"I think we need to continue to be and I certainly will be quite sensitive to developments in price inflation, which can, of course, be affected by wages, at this juncture I don't think you're seeing that degree of tightness in the labor market," he argued, noting that there's a possibility of getting more employment and higher wages.

Tarullo said Fed policymakers need to ask themselves "why do we need" an interest rate hike and whether "there is an affirmative reason to move".

"There are those who basically say, well, we've got to normalize, get to some norm of monetary policy of interest rates. That's not convincing to me. I don't know how one knows what normal is in any particular set of circumstances," he said.

Tarullo's comments are in stark contrast to a number of other Fed officials, including Fed Chair Janet Yellen, who's inclined to support rate hikes in coming months.

Tarullo also suggested that a potential exit of Britain from the European Union (EU) will be a factor as Fed officials weigh whether they should raise interest rates at their next policy meeting on June 14-15.

"It's a factor which is really trying to take into account what will be happening in financial markets, in the more or less immediate aftermath of the vote," he said, referring to the referendum on Britain's membership of the EU on June 23.

"If there are implications for growth over time, that's something that would affect our ongoing monetary policy," he said. Enditem