An influential member of the US central bank has said that an interest rate rise is “possible” in September.
“We’re edging closer towards the point in time where it will be appropriate I think to raise interest rates further,” said William Dudley, president of the New York Federal Reserve.
He told Fox Business Network that, depending on the data, a rate hike was possible at the next policy meeting.
The Fed has three meetings left in 2016 and is expected to raise rates once.
Data released Tuesday painted a mixed picture of the economy however.
The US Labor Department reported inflation rose just 0.2% in July, the same rate as the previous two months. Excluding food and energy, prices rose just 0.1%, the slowest increase since March.
The Fed has said inflation is a key metric for deciding when it will raise interest rates. It has set a target of 2% inflation over the next few years, but according to its own measurement the annualised rate has been stuck at 1.6% since March.
The stubbornly low inflation has been citied by the Fed as a reason for holding off on rate increases in past months despite improvements in the labour market and other area of the economy.
Mr Dudley said the US central bank needed to watch “the broad supports for the economy” and how inflation played out “in the coming months”.
Other data out Tuesday, painted a more positive picture of the US economy.
Construction of new homes in July rose at its fastest rate in nearly a year, boosting hopes that the economy may be picking up in the third quarter.
The Commerce Department said total housing starts rose 2.1% from June to an annual pace of 1.21 million units, the strongest jump since June 2015.
The increase appears to be led by growth in apartment building in the northeast US. Year-to-date construction is up 6.7% from the same period in 2015.
In another sign of market strength, industrial output climbed 0.7%, beating analysts expectations. Overall industrial output measures factory, utilities and mining production.
“The strong housing starts and industrial output performance will bolster the Fed confidence that growth momentum has rebounded, potentially supporting the bias for a near-term hike,” said Millan Mulraine, deputy chief economist at TD Securities in New York.
“Nevertheless, with inflation continuing to miss to the downside, the case for caution remains strong.”