Fed’s Williams Says Decision on Rate Increases ‘Approaching’
(Bloomberg) -- Federal Reserve Bank of New York President John Williams said that given current signs of a very strong labor market, the U.S. central bank is approaching a decision to begin gradually raising interest rates from near zero.
“The next step in reducing monetary accommodation to the economy will be to gradually bring the target range for the federal funds rate from its current very-low level back to more normal levels,” Williams said Friday at a virtual event hosted by the Council on Foreign Relations. “Given the clear signs of a very strong labor market, we are approaching a decision to get that process underway.”
At a separate virtual event hosted by the New York Times, San Francisco Fed President Mary Daly said officials are “going to have to adjust policy” because there aren’t a lot of signs that inflation -- running at the hottest rate in almost four decades -- is going to remedy itself.
Their remarks, closing a week in which Chair Jerome Powell and Fed Vice Chair nominee Lael Brainard both stressed the importance of getting generation-high inflation back under control, were the last scheduled words from policy makers before entering their blackout ahead of the Jan. 25-26 meeting of the Federal Open Market Committee.
Several other officials have gone further, discussing the need to liftoff in March and hike four or even five times this year to get ahead of inflation, marking a clear shift in outlook from just a few weeks ago. In December, U.S. central bankers forecast that they will raise rates three times this year and sped up the pace of tapering their asset-purchases to conclude the program in mid-March.
Williams declined to say how many hikes would be needed for the Fed to achieve its 2% inflation target and didn’t give a specific timeline for when the Fed will begin raising rates. The “timing of such decisions will be based on a careful consideration of a wide range of data and information, with a clear eye on our maximum employment and price stability goals,” he said.
But he voiced confidence that the economy could handle the removal of the Fed’s pandemic support.
“The economy is in a great place in terms of where we are now -- in terms of employment and GDP -- and it makes sense for monetary policy to evolve as the economy has,” Williams later told reporters. “We’re actually in a good position to do that in a way that isn’t disruptive.”
The omicron variant of the coronavirus could slow economic growth in the next few months, intensifying labor-supply challenges and supply-chain bottlenecks, Williams said. But once the omicron wave subsides, “the economy should return to a solid growth trajectory and these supply constraints on the economy should ebb over time.”
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