San Francisco Federal Reserve Bank President John Williams told
reporters he now sees slightly slower growth, slightly higher
unemployment, and about a tenth of a percent lower inflation this
year than he had expected in December, when the Fed raised rates for
the first time in nearly a decade.
At the time, officials at the Fed, the U.S. central bank, had as a
group expected about four further rate hikes this year, and Williams
had said that was in line with his own expectation.
That view appears to have changed, after investor worries about a
global slowdown and weakness in China sent equities and oil prices
plunging through most of January. Meanwhile the dollar has
strengthened, pushing down on U.S. inflation, which is running well
below the Fed's 2-percent target.
"Standard monetary policy strategy says a little less inflation,
maybe a little less growth ... argue for just a smidgen slower
process of normalizing rates," Williams said.
"We got a little stronger dollar, some mixed data on the economy,
some weakness in (fourth-quarter U.S. GDP growth), all of those
coming together kind of tell me that we probably need a little bit
more monetary accommodation this year than I was thinking in the
middle of December."
Earlier this week Williams was in Washington, where he and other Fed
policymakers decided to leave benchmark rates unchanged and to
acknowledge that they were closely watching global financial
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Williams said that over the past several months nothing had
fundamentally changed in his view of China's growth path, and that
even the Bank of Japan's surprise move to negative interest rates on
Friday had not changed his baseline forecast for the U.S. economy.
Further, his scenario of what's most likely for the U.S. economy,
his "modal" forecast, remains fundamentally unchanged for 2016 and
2017, he said.
He has previously forecast the U.S. economy will grow at about 2
percent to 2.25 percent, inflation will begin to return to the Fed's
2-percent target over the next couple of years, and the unemployment
rate, now at 5 percent, will also fall.
"The thing that has changed is that commodity prices keep coming
down," he said.
(Reporting by Ann Saphir; Editing by James Dalgleish)
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