Fed officials tell activists rate hikes won't derail economy

By Ann Saphir and Jason Lange

JACKSON HOLE, Wyo. (Reuters) - An unusually large group of Federal Reserve policymakers appeared before activists on Thursday and defended their plans to raise interest rates to keep the U.S. economy from eventually overheating.

Several policymakers said raising interest rates gradually would allow them to stimulate the economy for longer, but that an overheating economy could end in a recession.

"It's not about trying to stop the economy from growing," San Francisco Fed President John Williams told about 100 labor activists from the Fed Up coalition who pressed policymakers not to raise interest rates. "We're going to keep this economy growing, we are going to run it hot."

"My objective is not to slow down the economy," said Kansas City Fed President Esther George, who organized the meeting ahead of the annual central banking conference in Jackson Hole, Wyoming.

Fed policymakers have yet to decide when to raise rates again after lifting them in December for the first time in nearly a decade. Policymakers are divided whether to hike soon or take a more cautious approach.

A core group of Fed policymakers, the Board governors, are currently debating what is going on in the U.S. economy and how to set policy, Fed Vice Chair Stanley Fischer told the meeting.

"Everything that's being argued here is being argued in the board as well," Fischer said.

Much of the public commentary of Fed officials in recent weeks suggests the central bank is moving closer to a hike.

But the activists, who met with 11 Fed policymakers, used catcalls and applause to signal they were not buying it.

Years of lackluster wage gains and underemployment have left many Americans feeling left out of the country's economic recovery despite a 4.9 percent jobless rate.

Unemployment rates for African Americans are still about twice as high as those for whites, government statistics show.

Raising rates at this point in the recovery, said Rod Adams of Minneapolis, means "You'll be leaving us behind, pulling up the ladder right after you've climbed it."

The meeting, billed by organizers as a polite "listening session" for exchanging ideas, turned out to be a tough grilling for the Fed policymakers, who rarely appear in public in such numbers.

Fed officials worry that leaving rates too low for too long could stoke inflation, forcing the Fed to raise rates aggressively.

"One of the key goals should be that we don't have another recession," said Boston Fed President Eric Rosengren.

(Reporting by Ann Saphir and Jason Lange; Editing by Toni Reinhold and Andrew Hay)

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