Fed's George says further U.S. rate hikes are needed

AUSTIN, Texas (Reuters) - The Federal Reserve will need to raise U.S. interest rates further to keep the economy on track to full employment and the Fed's 2-percent inflation goal, Kansas City Federal Reserve Bank President Esther George said on Thursday.

"At this stage of the expansion, it is appropriate to move cautiously," said George, who has typically supported a faster program of rate hikes than most of her colleagues.

But waiting too long for another rate hike may force the Fed to raise rates aggressively later, sending the economy into recession, or could foster financial imbalances if investors respond to low rates by placing even riskier bets, she said.

"Moving interest rates at a gradual pace toward a level consistent with longer-run growth is the best step to help promote a continuation of the economic expansion," she said. "Further gradual rate adjustments will be needed."

The Fed last month left rates unchanged but most signaled that another rate hike would be needed in December, with more to come next year.

Since that meeting, several policymakers, including Fed Chair Janet Yellen, have said they do not fully understand why inflation has fallen this year despite a decline in the unemployment rate to 4.4 percent. Nevertheless, they continue to expect inflation will head back up as the labor market tightens, underscoring the need for further, gradual rate hikes.

George barely addressed the issue of inflation, saying only that raising rates provides the "most likely course, in my view, to meet our long-run goals of maximum employment and price stability."

(Reporting by Ann Saphir; editing by Diane Craft)

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