Williams Says Fed Well Positioned to Keep Economy on Good Track

(Bloomberg) -- The Federal Reserve is in a good place at current interest-rate levels to respond to future developments as it balances a “very strong” economy against weaker inflation, New York Fed President John Williams said.

“The economy remains on a path of healthy growth, with a very strong labor market and without the emergence of inflationary pressures,” Williams said Friday in remarks prepared for a speech in the Bronx, New York. “The current setting of policy positions us well to keep it that way,'' and the Fed is ``in the right place in terms of monetary policy.''

Fed officials have kept interest rates unchanged in a target range of 2.25% to 2.5% since December, when they hiked their benchmark overnight rate for a ninth time in three years. At the time, they were projecting additional tightening in 2019, but volatility in financial markets, a souring global-growth outlook, and an unexpected moderation in U.S. inflation pushed them to put hikes on pause. Meanwhile, President Donald Trump has called for an interest-rate cut, and markets expect one in the next 12 months.

“The strength of recent data on economic activity, the rebound of growth in China, and the reversal in the tightening of financial markets all imply that near-term risks to growth have receded somewhat,” Williams said.

“This has increased my confidence that the economy remains on track for moderate growth going forward,” he said. “At the same time, recent price data reaffirm that inflationary pressures remain muted.”

A measure of underlying inflationary pressures central bankers in the U.S. track closely moderated to 1.6% in March from about 2% in December, raising concerns that inflation would continue to run below the Fed’s 2% target, as it has throughout most of the current economic expansion.

Fed Chairman Jerome Powell, in a May 1 press conference, described the recent downdraft as ``transitory,'' expressing confidence that a strong economy would return the gauge to the target.

Williams echoed that message Friday, ascribing the dip to “normal volatility” in the inflation data.

“If you look at my preferred measure of underlying inflation, called trimmed-mean inflation -- which removes the most volatile price movements -- it’s been running at 2%,” Williams said.

“Healthy economic growth should in turn fuel solid job gains, higher wages for workers, and some further declines in unemployment,” he added. "The strong economy and labor market should also support inflation returning to 2%."

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