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Despite some muddled signals on the economy, Federal Reserve governor Randal Quarles is upbeat about the growth prospects and said the central bank could stay the course on gradual interest rate increases.
While he acknowledges it is unclear how long the solid economic growth can be sustained, he points to positive signs in the labor market and business investment.
‘Economic conditions are as close to meeting the Federal Reserve’s dual mandate for monetary policy – maximum sustainable employment and price stability – as they have been in a long time,’ Quarles said in his prepared speech.
He noted that the unemployment rate is near a 50-year low and inflation is sitting right around the Fed’s two percent target.
In addition, business investment climbed 10 percent in the first half of the year, which suggests productivity will rise, allowing the economy to continue to grow without fueling inflation and while attracting more workers into the labor pool, he told the Economic Club of New York.
In the minutes of the last month’s policy meeting when the Fed raised the benchmark interest rate for the third time this year, officials said gradual rate hikes remained appropriate.
And Quarles, the Fed’s vice chairman of financial supervision, said he was hopeful economic productivity ‘could accelerate from its relatively anemic pace of late, sustaining growth without overheating the economy.’
Signals muddled?
However, some signals, including inflation, that the Fed uses to decide whether to apply the brakes to the economy through a higher interest rate, may be muddled and masking more worrying developments.
But, likening the central bank’s job to that of a pilot, he said the Fed should continue to hold a steady course and only apply a ‘more athletic response’ if one of those signals moves decidedly in one direction.
‘Precisely because of the uncertainty around the course inputs, the right strategy was to set a course based on your knowledge of the destination, winds, and performance of your plane; communicate that course clearly to air traffic control so everyone knew what you were doing; and then stick to that course steadily even as the course needle might waver from side to side across your instrument,’ he said.
He said his optimism about the economy is partly due to factors he thinks will boost productivity, which will allow continued growth without fueling inflation.
One is the growing use of new technologies such as 5G communications and artificial intelligence, which could boost production even when workers are scarce.
And while companies big and small throughout the United States increasingly complain about difficulty filling open positions, Quarles said there were indications workers were entering or rejoining the workforce.
He said in response to a question that while economists did not fully understand what was happening in labor markets, he believed there was ‘significant room to satisfy demand by bringing workers back into the workforce.’
The Fed’s rate hikes have angered President Donald Trump, who has called the policy ‘crazy’ and ‘out of control.’ 
In response to a question about Trump’s criticism, Quarles said, the Fed’s job was ‘to remain focused on the facts of the economy and to be independent from the administration.’