Fed's Williams prefers rate hikes 'sooner than later'

Reprising an argument also made by Fed Chair Janet Yellen, Williams said that an earlier start to rate hikes would allow the Fed to remove monetary accommodation smoothly and gradually while still giving the economy the "steady nudge" of monetary accommodation that it still needs.

The Fed has kept U.S. interest rates pinned near zero since December 2008, and is widely expected to begin a long process of raising rates to more normal levels when policymakers meet in two weeks.

Williams was careful not to mention the upcoming Dec. 15-16 meeting specifically, but his prepared remarks in Portland, Ore. left little room for doubt that he would support a rate hike then. The labor market is nearly at full strength, he said, and while inflation is still below the Fed's 2-percent target, it should rise back to that level within two years as temporary downward pressures ebb and the economy strengthens.

"The next appropriate step is to raise rates," he said. "My preference is sooner rather than later."

(Reporting by Ann Saphir; Editing by Chizu Nomiyama)