Fed officials on board with more modest pace of interest rate hikes

By Michael S. Derby and Howard Schneider

NEW YORK, Feb 8 (Reuters) - Two Federal Reserve officials on Wednesday said more interest rate rises are in the cards as the U.S. central bank presses forward with its efforts to cool inflation, but declined to say whether unexpectedly hot jobs data would push them back to a more aggressive monetary policy stance.

Moving to a federal funds rate of between 5.00% and 5.25% "seems a very reasonable view of what we'll need to do this year in order to get the supply and demand imbalances down," New York Fed President John Williams said at a Wall Street Journal event.

Williams' comments were his first since the Fed's decision last Wednesday to moderate the pace of what had been a historically aggressive rate hike campaign to reduce high inflation. Williams serves as vice chair of the rate-setting Federal Open Market Committee, which boosted its benchmark overnight rate by a quarter of a percentage point to the 4.50%-4.75% range.

The Fed's rate hike was followed just days later by surprisingly strong January jobs data that suggested the central bank may have to raise rates even more as it seeks to better balance strong demand with available supply in the economy.

Speaking on Tuesday, Fed Chair Jerome Powell said "if we continue to get, for example, strong labor market reports or higher, higher inflation reports, it may well be the case we have to do more" with rate rises over time.

Williams did not signal that the January hiring data, highlighted by a gain of 517,000 jobs and decline in the unemployment rate to a 53-1/2-year low of 3.4%, would necessarily change the rate-hike outlook, nor did he suggest the Fed should have done something larger last week had it known what was in the jobs report.

KEEPING THE BRAKES ON

Inflation, based on the Fed's preferred measure, is running at more than double the target.

Williams reiterated his belief that it remains key for monetary policy to get to and stay at levels that will restrain economic growth "for a few years." He added that his expectations of future Fed rate cuts are driven mostly by a need to respond to the likelihood of lower levels of inflation in the future. Fed forecasts from December, which will be updated next month, showed the central bank lowering rates next year.

(Reporting by Michael S. Derby and Lindsay Dunsmuir; Editing by Paul Simao)

((Michael.Derby@thomsonreuters.com;))

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