US central bank needs to continue raising rates, Fed's Williams says

The US central bank needs to continue tightening policy gradually in order to prolong the economic expansion for as long as possible, a top rate-setter said.

In a speech delivered in Sydney, the president of the Federal Reserve bank of San Francisco echoed Fed chair Janet Yellen, saying the recent dip in inflation was transitory and the rate of price gains would return to 2% by next year.

Key to his outlook, John Williams said the US rate of unemployment would fall was set to fall further and remain a tad above 4% through 2018.

A very strong labour market carried with it the risk that the economy would overheat.

The greater the public's understanding, the lower the chances that the central bank's actions would unnecessarily fuel volatility in markets.

Williams was not a voting member on the Federal Open Market Committee in 2017.