Fed's George says inflation to rise; backs more rate increases

(Reuters) - The U.S. Federal Reserve will likely have to keep raising interest rates, in part because a tightening labor market could lead inflation to accelerate over the next few years, Kansas City Fed President Esther George said on Thursday.

"By nearly every measure, the U.S. economy is performing well," George said in prepared remarks at a forum on the economy in Tulsa, Oklahoma.

George, who does not have a vote on monetary policy this year but participates in discussions at the U.S. central bank, said job growth in the U.S. would likely slow as it becomes harder for firms to fill vacancies.

This ongoing tightening of the labor market, made possible in part by years of low interest rates, "could push inflation somewhat higher over the next couple of years," George said.

One measure of U.S. inflation slowed in September, although a separate measure tracked by the Fed has been at the central bank's 2 percent target level in recent months.

George said she supports the Fed's approach to raising borrowing costs, including a rate hike last month that was the third this year.

The "outlook will likely require further gradual increases in the FOMC's target interest rate," George said, adding that the "pace and extend" of the future policy remained a matter of discussion at the Fed.

(Reporting by Jason Lange in Washington; Editing by Chizu Nomiyama)

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