Boston Fed's Rosengren argues for continuing with gradual rate hikes

A top Fed official argued on Friday for continuing to raise interest rates gradually, apparently including through the end of 2018, which appeared to indicate that he might back further rate hikes in both September and December.

In an interview with broacaster CNBC, Boston Fed chief, David Rosengren, said that: "policy is still accommodative, the only reason that we should not move it up more quickly is because we don't have that much inflation at this point.

"And in part it's a prevention so that we do not have more serious inflation going forward," he added.

Key to the policymaker's thinking, given the current rate of expansion in the economy, the labour market was going to get tighter, whereas increases in labour productivity continued to lag behind that of wages, although he labeled the rate of increase in the latter as "slow".

Indeed, many of his business contacts had been telling him that, given the reduced supply of workers, "[we're] going to have to be increasing wages more substantially".

"If things work out well for the economy, and that's what I expect and hope, then we'll be in a situation where we need to have somewhat restrictive policy over time," Rosengren told CNBC's Steve Liesman.

Rosengren said he believed the so-called 'neutral' interest rate lay towards the top of the 2.5% to 3.0% range.

The target range for the Fed funds rate was then at 1.75% to 2.0%.

His remarks were perhaps more aggressive than those of fellow rate-setter John Williams, the President of the New York Fed, who spoke overnight.

Williams had said that the central bank should not shy away from "inverting" the Treasury yield curve with its actions if needed to meet its dual mandate of full-employment and price stability.

However, Williams also said that wage growth was not yet running away, remarks which some market commentary took as being somewhat 'dovish'.

"The fact that wages haven’t grown a lot faster is a sign that this economy still has room to run [...] we don't feel the need to raise interest rates more quickly than otherwise," he said.

The Federal Reserve bank of Boston was holing its 62nd Economic Conference on Friday where Cleveland Fed chief, Loretta Mester, was among those in attendance and expected to make remarks.

Her opposite number at the Dallas Fed, Robert Kaplan, was scheduled to speak later in the day.