Federal Reserve Governor Randal Quarles offered an optimistic view of the U.S. economy, suggesting it may be on the cusp of a sustained period of faster growth and reaffirming his support for “gradual” interest-rate increases.
“Some of the factors that have been holding back growth in recent years could shift, moving the economy onto a higher growth trajectory,” Quarles said, according to the prepared text of a speech delivered Monday in Washington. He added, however, “I currently see this shift more as a clear possibility than an unarguable reality.”
Quarles drew encouragement from increased capital expenditures by businesses, and said tax cuts enacted in December “will also likely boost investment and increase the capital stock.” He hedged his optimism by saying productivity growth continued to be lackluster and also highlighted the longer-term risk posed by a growing federal debt.
Quarles’ remarks come a day before the Fed’s new chairman, Jerome Powell, is scheduled to testify before lawmakers on the state of the U.S. economy. Powell is likely to face questions about his own views on whether a recent upturn in growth is likely to persist and what the Fed’s response will be.
Quarles, who joined the Fed in October, made clear he thought a sustained period of higher growth might require higher interest rates, but not severe as to halt the expansion.
“This higher policy path would be motivated by sustained stronger growth and improved economic conditions, not a greater desire to slow the economy,” he said.
