Adobe Stock Aaron Kohr - [email protected]

Reuters is reporting a technical and philosophical debate between Federal Reserve Chair Jerome Powell’s top deputies that could have major implications on the economy.

There is a disagreements over whether the economy has shifted into a higher gear, giving the Fed room for more interest-rate hikes and perhaps reducing the need for controversial tools like bond-buying to fight future recessions, Reuters reports.

On Tuesday, San Francisco Fed President John Williams said that the Fed has only a few more rate hikes ahead of it before rates reach a level of borrowing costs that allows the economy to coast along, without stimulating or slowing its progress.

"It's important to distinguish between the current strong economic conditions and the key longer-run drivers underpinning interest rates," he said at the Economic Club of Minnesota. Despite economic tailwinds like tax cuts and government spending, "the longer-run drivers still point to a 'new normal' of a low (neutral rate) and relatively low interest rates."

But Randal Quarles, the Fed vice chair for financial supervision, said in February that he believed there is a "real possibility" that the economy could shift to a higher growth trajectory, Reuters notes.

Quarles' view suggests that the Fed has a bit more room to raise rates without braking the economy, which would, in turn, give it the flexibility to cut rates more deeply in the next downturn, and perhaps avoiding the need for unconventional measures like bond purchases.

Read More