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"It
makes sense for us to be moving interest rates gradually back to
more a normal level over the next couple years," Williams said.
"I actually think that's a sign of strength for the global
economy."
Speaking at a panel on systemic risk at the Milken Institute
Global Conference, Williams said the biggest systemic financial
risk currently is the possibility that "broad sets of assets are
going to see big movements downward" as interest rates rise.
"That's an area that I think is a potential risk."
Williams did not suggest he sees another crisis brewing, adding
that U.S. regulators have made "amazing" progress in shoring up
banks against potential future failure.
"What I worry a lot more about is when people forget about the
financial crisis, when they forget about the terrible things
that happened," he said, suggesting that may not happen for
another five or ten years.
The Fed raised interest rates for the first time in nearly a
decade last December, but has held off raising them any further
amid global stock volatility and worries over a decline in
global growth.
Even after the Fed resumes raising rates, Williams said, it will
not be able to lift them as high as it has in the past.
Most Fed officials currently think that the rate at which the
economy can sustain healthy employment and steady prices has
probably fallen to about 3.25 percent in the long run, a full
percentage point lower than was the case before the crisis. But
there are significant downside risks to that estimate, Williams
said.
(Reporting by Ann Saphir; Editing by Diane Craft)
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