Federal Reserve Governor Lael Brainard said further gradual increases to U.S. interest rates are "appropriate," adding to signs that the central bank will continue tightening monetary policy even as inflation has remained stubbornly low. 

The pace of price rises could increase as some $1.5 billion of tax cuts flow through the economy in addition to $300 billion of extra spending recently approved by Congress, she said in a speech Tuesday in New York. While the stimulus comes as unemployment is already at a 17-year low, financial conditions remain "accommodative," signaling that markets could absorb higher borrowing costs. 

The Fed's preferred measure of inflation is tracking at 1.7%, below the Fed's target of 2%, but the "stronger tailwinds" from the tax cuts could "help re-anchor inflation expectations," she noted.

"Continued gradual increases in the federal funds rate are likely to remain appropriate to ensure inflation rises sustainably to our target and to sustain full employment, keeping in mind that interest rate normalization is well under way," Brainard said.

Brainard's comments echo those made by Fed Chairman Jerome Powell in testimony before Congress last week that the central bank will act to keep the economy from overheating. 

Recent reports showing faster wage gains had kindled concerns among some traders that the Fed might need to accelerate the pace of increases to tamp down inflation, rattling U.S. stock markets. Yet some economists say the low inflation readings should cause the central bank avoid further rate increases to avoid snuffing out an economic recovery before it takes hold. 

The Fed raised rates three times in 2017, bringing the target to a range of 1.25% to 1.5% from near zero before the central bank started the current hiking cycle in late 2015. A rate increase at a meeting later this month of the central bank's monetary-policy committee is deemed by most traders to be a near certainty.

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