Fed’s Williams says US economy does not yet justify policy shift


A senior Federal Reserve official said the US economy was not yet ready for the central bank to start pulling back its hefty monetary support, even though the outlook had become rosier.

The comments from John Williams, the president of the Federal Reserve Bank of New York, were delivered on Monday amid high sensitivity in financial markets to Fed policy. Economic projections by central bank officials last week signalled they expect to increase interest rates in 2023, a year earlier than previously indicated.

Williams said the economy was “getting better all the time”, in some of his most bullish remarks since the pandemic started. But he insisted the Fed would stick to the terms of its monetary policy framework, introduced last August, which sets a high bar for tightening policy.

“It’s clear that the economy is improving at a rapid rate, and the medium-term outlook is very good.

“But the data and conditions have not progressed enough for the Federal Open Market Committee to shift its monetary policy stance of strong support for the economic recovery.”

The comments appeared more cautious on the prospect of a quick policy change compared to those of other regional Fed presidents since the last FOMC meeting.

Speaking to CNBC on Friday, James Bullard, the president of the St Louis Fed, sparked a sharp sell-off in US stocks when he suggested the central bank might be ready to increase interest rates as early as next year.

Williams said that interest rates would not be increased until full employment was reached and inflation had risen to 2 per cent and was “on track” to exceed that target moderately for some time.

He also said that any tapering of the Fed’s $120bn monthly asset purchases would not take place until “substantial further progress” had been made on those fronts.

“In thinking about adjusting its stance in the future, the FOMC has defined conditions and measures that will inform its decision-making,” he said.

On Monday, at an event hosted by Official Monetary and Financial Institutions Forum, a think-tank, Bullard reiterated the need for the Fed to begin considering scaling back its bond purchases in the face of higher inflation. 

Robert Kaplan, Dallas Fed chair, struck a similar tone at the same event.

“It would be healthier as we are making progress in weathering the pandemic and achieving our goals to start adjusting these purchases — Treasuries and mortgage-backed securities — sooner rather than later,” Kaplan said.



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