Active Stocks
Fri Jun 14 2024 15:58:47
  1. HDFC Bank share price
  2. 1,597.45 1.05%
  1. State Bank Of India share price
  2. 840.20 -0.44%
  1. Tata Steel share price
  2. 183.05 0.30%
  1. ICICI Bank share price
  2. 1,105.10 -0.20%
  1. Kotak Mahindra Bank share price
  2. 1,717.00 -0.54%
Business News/ Market / Stock-market-news/  Fed’s John Williams sees interest rates rising as inflation moves up
BackBack

Fed’s John Williams sees interest rates rising as inflation moves up

Federal Reserve policy maker John Williams said he expects inflation to rise to the US central bank's 2% target next year as unemployment edges lower

The comments by John Williams suggest that he’s lining up with Fed Chair Janet Yellen in an emerging debate on how to respond to an easing in inflation during the last few months. Photo: BloombergPremium
The comments by John Williams suggest that he’s lining up with Fed Chair Janet Yellen in an emerging debate on how to respond to an easing in inflation during the last few months. Photo: Bloomberg

Washington: Federal Reserve policy maker John Williams made the case on Monday for further gradual increases in interest rates, saying he expects inflation to rise to the central bank’s 2% target next year as unemployment edges lower.

“Gradually raising interest rates to bring monetary policy back to normal helps us keep the economy growing at a rate that can be sustained for a longer time," Williams said in remarks prepared for delivery at the University of Technology Sydney.

The comments by the president of the Federal Reserve Bank of San Francisco suggest that he’s lining up with Fed Chair Janet Yellen, his predecessor at the bank, in an emerging debate on how to respond to an easing in inflation during the last few months.

While some Fed officials have argued for a pause in the rate-hiking campaign to wait for clearer signs that inflation is indeed headed higher, Yellen has played down the significance of recent weak price data and suggested that the Fed remains on course for higher rates.

Williams seemed to agree. “Some special transitory factors have been pulling inflation down," he said. “But with some of these factors now waning, and with the economy doing well, I expect we’ll reach our 2% goal some time next year."

Those special factors include a steep drop in the cost of mobile-phone services. That helped pull down the Fed’s favourite inflation gauge to 1.7% in April from 1.9% in March and 2.1% in February.

Williams also saw a danger in the Fed allowing the unemployment rate to fall too far. “The very strong labour market actually carries with it the risk of the economy exceeding its safe speed limit and overheating, which could eventually undermine the sustainability of the expansion," he said.

At 4.3% in May, the US jobless rate was already below what Williams thinks is its long-run sustainable rate of 4.75%. And he sees it dropping some more. “Given the strong job growth we’ve been seeing in the United States, I expect the unemployment rate to edge down a bit further and remain a little above 4% through next year," Williams said.

The Fed earlier this month raised interest rates for the second time this year. Policy makers have penciled in one more rate increase for 2017 and three more for 2018, according to projections released after their June 13-14 meeting. Williams is not a voting member of the Federal Open Market Committee (FOMC) this year but will vote in 2018.

Williams affirmed the Fed’s intention to begin trimming its $4.5 trillion balance sheet this year, saying the central bank would start off “nice and easy."

The aim will be to gradually reduce bond holdings in a widely telegraphed and predictable fashion, he said. “I hope I’ll not be perpetuating an unfair stereotype about economists if I say that ‘boring’ is a virtue," Williams said. “Indeed, my new mantra is, ‘Boring is the new exciting.’" Bloomberg

3.6 Crore Indians visited in a single day choosing us as India's undisputed platform for General Election Results. Explore the latest updates here!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 26 Jun 2017, 11:42 AM IST
Next Story footLogo
Recommended For You