"Every meeting will truly be live in terms of adjusting policy one
way or the other," San Francisco Federal Reserve Bank President John
Williams told Reuters in an interview, referring to the Fed's
Fed officials on Wednesday unanimously backed an increase to the
central bank's benchmark interest rate target, lifting rates from
near zero for the first time since the financial crisis. The policy
meeting had been widely anticipated as ending in a rate hike.
Afterwards, attention turned immediately to the likely timing of the
next move. Many economists have latched on to March as the most
probable, in part because that would coincide with Fed Chair Janet
Yellen's next scheduled press conference.
Fresh forecasts from the Fed suggest policymakers are looking for
about four rate hikes next year. Williams - who worked for Yellen
when she ran the San Francisco Fed before handing the reins to him,
and whose views are seen to align closely with hers - said his own
view is in line with that expectation. The Fed meets eight times a
"You might immediately jump to the conclusion that it's every other
meeting," Williams said, referring to the likely timing of next
year's rate increases. "But as we've learned over the last several
years, the economy does not always perform as forecast."
Though much more optimistic about the economy than in prior years,
Williams said that at the end of this week's meeting, there was no
round of high-fives among the 17 policymakers at the table.
"We are not done: we still have inflation unquestionably running
stubbornly low due to mostly, I think, global factors," he said.
To keep job creation strong, rates will need to stay low, rising
only modestly next year, he said, adding: "We are going to run a
higher-pressure economy for a while."
If the economy springs any surprises, he said, the Fed will respond
as needed. And Fed policymakers could decide to raise rates even at
meetings when Yellen does not hold a scheduled press conference, he
"There was value to having the first move at a press conference
meeting," Williams said, "but in the future I don't think that's as
much of an issue."
Yellen, in her news conference immediately following Wednesday's
decision, also emphasized that rate hikes, though gradual, would not
necessarily be all a quarter of a percentage point or evenly spaced
in the calendar year.
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NO HEAT NEEDED FOR 2017, 2018
In a wide-ranging, hour-long interview at the San Francisco Fed's
headquarters, Williams said he expects easy Fed monetary policy to
help push the unemployment rate, now at 5 percent, down to around
4.5 percent by the end of next year.
On inflation, he saw it rising toward the Fed's 2-percent goal next
year as the effects of a strong dollar and falling energy prices
He did not see a need for the economy to run hot anymore by 2017,
saying: "I just need it to be running at kind of a steady pace."
That second, slower stage of economic growth in 2017 and 2018, he
said, will occur as the Fed gradually raises its target interest
rate to around 3.25 percent to 3.5 percent, a level he sees as the
likely long-run neutral rate.
ARMY WITH FEW RESERVES
Williams said he is "completely confident" that the Fed's timing on
its first rate hike was appropriate. Even so, he said, there's "some
kind of probability," perhaps about 10 percent, that a shock could
hit the economy and send it back into recession.
If that happens, he said, the Fed would not hesitate to cut rates
and perhaps buy more bonds or promise to keep rates low for a
certain period of time. These are tools it used after the financial
crisis to ease monetary policy when rates were already near zero.
"We are still in a situation where most of our tools are fully
employed. Itís like an army thatís got all of your forces out there,
you donít have a lot of reserves," said Williams. "Itís hard to feel
like, well, Iím feeling any kind of sense of victory or something."
(Reporting by Ann Saphir; Editing by Chizu Nomiyama)
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