The US economy is on "sound footing", a hawkish Federal Reserve official said yesterday in a speech that cautioned against asking the central bank to solve problems beyond its control, such as low productivity growth.

Cleveland Fed president Loretta Mester, at a forum in Singapore, did not comment specifically on interest rates. However, she has dissented in the past in favour of quicker rate hikes and, yesterday, urged the Fed to focus on returning to a more normal policy footing, including trimming its US$4.5 trillion (S$6.4 trillion) bond portfolio.

The Fed has raised rates twice in two years, and expects to pick up the pace of tightening this year as unemployment, at 4.8 per cent, has fallen to near an equilibrium level, and as the Republican-controlled White House and Congress are expected to provide fiscal stimulus.

The US economy is "now on sound footing", Ms Mester, who does not vote on monetary policy until next year, said in prepared remarks to the Global Interdependence Centre.

But she said: "I am very doubtful that monetary policy could be targeted to spur a strong pickup in the types of investment in human capital and physical capital that would raise productivity growth."

Years of disappointing productivity growth have stymied the Fed's expectations that the US economy would grow sustainably quicker than its roughly 2 per cent rate.

Turning to the balance sheet, which the Fed quadrupled in the wake of the financial crisis to spur investment and hiring, Ms Mester reiterated that the central bank expects to shed its mortgage-backed bonds and return to an all-Treasuries portfolio.

"The return... may help guard against future calls for the Federal Reserve to enter into the realm of fiscal policy," she said.

REUTERS