Tags: federal reserve | john williams | interest rate | hike

Fed's Williams: Rate-Rise Discussion Should Begin Mid-Year

Tuesday, 24 March 2015 06:52 AM

Federal Reserve Bank of San Francisco President John Williams said a discussion should happen mid-year about tightening policy, even as he lowered his economic growth forecast.

Williams, who votes on policy this year, said in remarks prepared for delivery in Sydney Tuesday that he expects U.S. real gross domestic product to grow about 2.5 percent in 2015 from a previous forecast of just under 3 percent. He said he expected an improving economy to push wages and prices up, and inflation to move back toward the Fed’s 2 percent target.

“I think that by mid-year it will be the time to have a discussion about starting to raise rates,” Williams said, altering the phrase from “serious discussion” that he used in a March 5 address in Honolulu. “I’m not making a prediction about what the Fed will do; I am saying that in my view, it would be appropriate to start weighing the pros and cons of taking action at that time.”

Fed Chair Janet Yellen and her colleagues last week opened the door to an interest-rate increase as soon as June, while indicating in their forecasts they’ll go slow once they start. They cut their median estimate for the main policy rate at the end of 2015 to 0.625 percent, down from 1.125 percent in December.

“There’s a difference between easing off the gas and applying the brakes,” Williams said. “Monetary policy has been extremely stimulative for the past six-plus years, and it’s going to remain so for quite some time.”

Full Employment

The U.S. economy and labor market are “on the mend” and “closing in on” full employment, Williams said. He said that given the growth momentum there’s “a good chance” unemployment will fall below 5 percent as early as late 2015. The inflation trend is running at about 1.5 percent on the trimmed-mean measure, Williams said.

Williams added the caveat that the one thing that would change his timing for a discussion on raising rates would be “if the data contradicted the forecast I laid out today.”

In New York Monday, Fed Vice Chairman Stanley Fischer said raising interest rates from near zero “likely will be warranted before the end of the year” and subsequent increases probably won’t be uniform or predictable.

“A smooth path upward in the federal funds rate will almost certainly not be realized” as the economy encounters shocks such as the surprise plunge in oil prices, Fischer told the Economic Club of New York.

The Fed has kept its benchmark rate near zero since December 2008.

Dollar Driver

On the dollar, Williams said its appreciation was a function of stuttering growth abroad and central bank efforts there to stimulate their economies.

“This is a standard function of monetary policy,” Williams said. “I should point out that the strength of the dollar relative to other currencies reflects the weaker economic conditions in those countries compared to the U.S.”

Williams, 52, joined the San Francisco Fed in 2002 and was director of research before becoming president in 2011. He succeeded Yellen as chief of the regional bank, one of 12 in the U.S. His district includes Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Utah and Washington.


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Federal Reserve Bank of San Francisco President John Williams said a discussion should happen mid-year about tightening policy, even as he lowered his economic growth forecast.Williams, who votes on policy this year, said in remarks prepared for delivery in Sydney Tuesday...
federal reserve, john williams, interest rate, hike
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2015-52-24
Tuesday, 24 March 2015 06:52 AM
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