Given the persistently robust U.S. economy, the Federal Reserve should stay on its path of gradual interest rate increases, said Randal Quarles, vice chairman for supervision at the central bank, in an Oct. 18 speech.

"The economy remains in a good spot," Quarles said at a meeting of the Economic Club of New York. "Inflation is in line with the Committee's 2% objective, and the unemployment rate is at nearly a 50-year low."

In response to a question, he added: "Because I'm optimistic about the progression of the economy, I think we'll be able to follow a gradual rate increase."

Quarles noted that business fixed investment climbed at an annualized rate of 10% in the first half of this year, an increase that is likely attributable to the 2017 tax law.

However, he also noted that the historic inverse relationship between low unemployment and higher inflation has broken down. If the Fed relies on inflation as its only signal of where the economy stands, anchored inflation expectations may mask indications of an overheating economy, and prices may eventually move up more quickly than expected.

Quarles urged policymakers to "chart a course that is stable, gradual, and predictable; communicate it clearly; and then follow that course through the temporarily shifting and sometimes conflicting signs from the economy unless some strong and steady signal requires a firm but moderate correction."

As markets entered a volatile period this month, President Donald Trump criticized the Fed for continuing to raise interest rates.

"The job of the Fed is to remain focused on the fact of the economy and remain independent," Quarles said. "I think we can do our job."

Turning to regulatory issues, Quarles said he believed U.S. banks are well capitalized and that concerns over economic overheating do not warrant turning on the counter-cyclical capital buffer. The mechanism, introduced as part of the Basel III reform process, encourages regulators to consider macroeconomics when setting bank capitalization rates and is meant to protect against the kind of credit expansion that led to the great recession.

The Fed has a framework for evaluating whether risks are building up in the financial system, Quarles noted.

"Currently, we view the financial stability risks as moderate — they would not argue turning on the counter-cylical capital buffer," he said.