Chicago: Federal Reserve officials voiced growing confidence Friday that the US economy is moving closer to the central bank’s targets on unemployment and inflation.

“I am optimistic that fundamentals will remain strong and that the labour market will continue to support consumer-led growth in output,” said Charles Evans, president of the Chicago Fed, speaking on a panel at the annual conference of the American Economic Association.

US central bankers are weighing how quickly to raise interest rates this year amid investor optimism that President-elect Donald Trump can shake the economy out of its low-growth rut by delivering tax cuts, investment and regulatory reforms that also lift price pressures.

Evans, who worried as recently as November that inflation wasn’t headed back toward the Fed’s 2 per cent target, said he now anticipates actual and expected inflation to move “close to 2 per cent in the next two to three years.”

Speaking to reporters after the panel, Evans said two rate increases in 2017 “is not an unreasonable expectation,” and three moves was “not implausible.” Fed officials forecast three rate hikes this year in quarterly estimates submitted for their December meeting, compared to two increases in their September projections.

Upside Risks

Minutes of the Fed policy meeting last month showed officials were shifting their focus toward the risk that expansionary fiscal policy from the Trump administration may warrant a faster pace of rate hikes than expected. Still, most of them continued to judge that a gradual pace of rate increases was likely to be appropriate.

Dallas Fed President Robert Kaplan, who, like Evans, is a voting member this year on the rate-setting Federal Open Market Committee, said officials need to be watchful.

“A higher federal funds rate in 2017 is going to be appropriate,” he said in an interview Friday on Bloomberg Television. “I still think we can do it in a gradual and patient way, but we need to be on that.”

Philadelphia Fed chief Patrick Harker separately said, “I’m pencilled in for three increases next year, however, that’s subject to a lot of uncertainty,” referring to the current lack of clarity over Trump’s future fiscal proposals.

Speaking on Sirius radio Friday, he said “as the policy uncertainty resolves itself, we’ll be able to see whether it’s 3, 2, 4.” Harker is also an FOMC voter this year.

Data released earlier on Friday showed US employers added 156,000 jobs in December. That was below the average estimate of 175,000 in a Bloomberg survey of economists, but enough to bring the year’s gains to more than 2 million for a sixth straight year.

Average hourly earnings rose 2.9 per cent from a year earlier, the biggest jump since 2009.

Cleveland Fed chief Loretta Mester, who urged her colleagues to raise rates over the last four months of 2016 to prevent economic overheating, didn’t seize on the latest wage data as a warning sign that inflation would soon rise too quickly.

“I wouldn’t call it a big risk,” she told Fox Business Network in an interview after the report’s release. “I think that over the next two years we’re going to meet our inflation goal of 2 per cent.”

She also argued for a slightly steeper path of rate hikes than the one set out by the FOMC for 2017 and 2018. “I have a little more optimism in terms of meeting the inflation goal,” she said.

Daniel North, chief economist at credit insurer Euler Hermes, in Owings Mills, Maryland, said the December jobs data will add slightly to the argument that the Fed should keep its eye on inflation.

“It’s hard to influence policy with any single one month of data, but the year-on-year increase in average hourly earnings was the highest in seven years,” North said. That “surely is going to create some confirmation bias” among Fed officials worried about inflation, he said.

Richmond Fed President Jeffrey Lacker said the federal funds rate was “exceptionally low” and required an upward adjustment.

“Monetary policy rates are likely to increase, and my view is that they may need to increase more briskly than markets appear to expect, depending on developments as the year unfolds,” Lacker said in a speech delivered Friday by one of his deputies to the Maryland Bankers Association in Baltimore.

Prices in federal funds futures contracts Friday implied investors expect the Fed to raise rates twice in 2017.

The FOMC’s next meeting is scheduled for Jan. 31-Feb. 1 in Washington.