By Ernest Scheyder
HOUSTON (Reuters) - The U.S. economy would benefit from the Federal Reserve raising rates sooner rather than later, Kansas City Fed President Esther George said on Friday, reinforcing the view the U.S. central bank will increase borrowing costs next month.
George, who is a voting member on the Fed's rate-setting committee this year and has argued for rate increases in recent months, warned that keeping rates too low could tighten the labor market so much that inflation takes off.
"Monetary policy should avoid deliberately stoking the risks that come with overheating the U.S. economy," she said in prepared remarks, adding the Fed should "slowly raise the federal funds rate."
While George did not say if she would back a hike at the Fed's Dec. 13-14 policy meeting, she said "moving sooner, rather than later" would take into account the lag time before changes in interest rates filter down to the real economy.
George dissented at the Fed's policy meeting earlier this month when the central bank left rates steady. She favored a 25 basis point increase.
In her speech to be delivered at an energy conference in Houston, George said investments in the energy sector were poised to help the U.S. economy, given that current oil prices were giving incentives to some oil and gas drilling operations.
However, lower oil prices could prevent that, a scenario that would be more likely if the Organization of the Petroleum Exporting Countries fails to reach a deal to limit output as is expected this month, George said. On Friday, the oil producers cartel appeared closer to a deal.
(Reporting by Ernest Scheyder; Additional reporting by Jason Lange in Washington; Editing by Andrea Ricci)