Fed officials consider US growth 'solid'

The US Federal Reserve has lifted interest rates to more appropriate levels amid solid growth, policy-makers said today in remarks that hint the US central bank will only raise rates one or two more times.

"We're in fact in a period now where I like to think that we've got policy recalibrated about right and we will adjust as we watch things unfold over the coming months," Atlanta Fed Bank President Jack Guynn, a voting member of the Fed's rate-setting committee this year, told the Augusta Exchange Club in Augusta, Georgia.

Financial markets bet the Fed will raise rates by a quarter percentage point at its next meeting on January 31, and they a give it a slightly better than 50/50 chance that it will raise rates again, to 4.75 per cent at the following meeting on March 28.

The Fed has been raising its benchmark federal funds rate target in steady, quarter-percentage point steps since June 2004 from an ultra-low level of 1 per cent.

Most economists now think rates have been raised into the so-called "neutral" range, where they neither boost nor hinder economic growth. Guynn's remarks signaled that he agreed that policy did not need to be tightened much further.

"We've got the accommodation, the huge accommodation, we put in place several years ago out of the system and we're back to some more balanced kind of a policy, where hopefully growth will remain at a steady, sustainable pace, where inflation won't rear its head. We're going to be watching ... what the data brings and what's around the next corner," he said.

Some economists fear growth may be crimped by a cooling housing market. But Fed officials have been consistently confident on the outlook, and Dallas Fed Bank President Richard Fisher stuck to this script at an event in Fort Worth, Texas.

"The Federal Reserve will continue to work hard to make sure that inflation doesn't raise it's head. I think we're in very good shape," he told reporters after giving a speech.

"The economy is healthy and I keep reminding (myself) that this is a giant machine and it has a lot of momentum," said Fisher, who is not a policy voter this year.

Consumer prices rose 3.4 per cent last year, but were up at a more subdued pace of 2.2 per cent once food and energy costs were stripped out -- a level that some Fed policy-makers may see as at the top of their tolerance range.

Guynn was not asked about inflation during the question and answer session that followed his speech. But in those remarks, which repeated a talk he gave last week, he said the Fed must "lean against" any rise in inflation expectations.

Guynn also voiced confidence in US growth and said he was more concerned about an unexpected shock forcing the Fed to take action, than disappointment on spending or investment.

"I would love to think we'd have another (growth) period like the 1990s. But I've learned ... there is always something round the corner.

"My guess is that, rather than something fundamental, like business spending or consumer spending, that may turn out differently than we expect, it will be some unexpected event that will turn up somewhere that will change the course of policy and change the course of the economy," he said.

- REUTERS