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2 Fed Officials Shrug Off Stock Plunge, Say Economy Is Sound

Image: 2 Fed Officials Shrug Off Stock Plunge, Say Economy Is Sound

Monday, 04 Jan 2016 05:16 PM

Two regional Federal Reserve bank presidents, Loretta Mester of Cleveland and John Williams of San Francisco, dismissed concerns over stumbling stocks on the first trading day of the year and said the U.S. economy’s expansion was on solid ground.

“Underlying fundamentals of the U.S. economy remain very sound,” Mester said Monday in an interview on Bloomberg Television. “There’s going to be volatility in the markets, that’s kind of the nature of financial markets.”

Mester, who votes this year on the policy-setting Federal Open Market Committee, said she expects the U.S. economy to grow by 2.5 percent to 2.75 percent this year. Williams said he has forecast about 2.25 percent growth. Both said the Fed should tighten monetary policy gradually in 2016, provided the economy expands as expected.

Their remarks came after the Dow Jones Industrial Average got off to its worst start to a year since 1932. Investors were reacting to negative manufacturing data from Asia and a sell-off in Chinese stocks. Confidence in the U.S. economy prompted Fed officials to raise interest rates last month for the first time in nearly 10 years.

Mester said a weakening economy in China had already been built into the outlook for 2016 by Fed officials.

No ‘Significant’ Risk

“I don’t see that as a significant risk for the forecast,” she said.

Williams, who doesn’t vote on policy again until 2018, also downplayed market turmoil, saying he expected unemployment in the U.S. to fall below 5 percent and inflation to begin moving back toward the Fed’s 2 percent target this year.

“We are, relative to most other countries, in very good shape, partly because we took very aggressive monetary policy actions, and other actions, to get our economy back on track,” Williams said in an interview on CNBC.

Still, Williams added that because weak overseas growth would continue to hurt exports, the Fed would have to continue with “significant monetary accommodation” to keep growth above 2 percent.

Williams said he expects the Fed to raise rates three to five times in 2016, provided the economy stays on track. The median estimate of quarterly Fed projections released in December was for four quarter-point hikes this year.

Fed Chair Janet Yellen told a press conference following the Dec. 16 decision to raise rates that officials expect to move gradually as they contemplated additional hikes. The Fed is scheduled to release the minutes of its December meeting on Wednesday. The FOMC will convene again on Jan. 26-27 in Washington.

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Two regional Federal Reserve bank presidents, Loretta Mester of Cleveland and John Williams of San Francisco, dismissed concerns over stumbling stocks on the first trading day of the year and said the U.S. economy's expansion was on solid ground.
fed, stock market, investor, economy
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2016-16-04
Monday, 04 Jan 2016 05:16 PM
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