Fed's Williams, Unfazed by China, Sees 3-5 Rate Hikes This Year

Economic Indicators Reuters

San Francisco Federal Reserve President John Williams said Monday he is unfazed by the weak economic data out of China that has spooked Wall Street, and sees three to five U.S. interest rate hikes this year as reasonable given the strength of the U.S. economy.

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"In terms of those developments ricocheting into the U.S. economy, I think we have really really strong fundamentals, in terms of consumer spending, in terms of our economic trajectory, so right now at least this isn't a big concern for me," said Williams, one of the few Fed officials who regularly visits China for a first-hand look at the world's second-largest economy.

For 2016, "I think something in that three to five rate hike range makes sense at least at this time," Williams said in an interview on CNBC.

The Fed last month raised interest rates for the first time since the financial crisis, lifting its target range for short-term borrowing costs to between 0.25 percent and 0.5 percent.

As a group, Fed officials expect four more rate hikes this year, putting the target range between 1.25 percent and 1.5 percent by the end of 2016, based on the median of their forecasts released last month.

Williams said he is neither surprised nor concerned by the weaker Chinese economic data and the stock market fall there that sent world stocks into a rout at the start of the new year.

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"The Chinese stock market affects a relatively small share of Chinese citizens. It doesn't affect the U.S. financial system that much directly so to me those are not major concerns in terms of systemic risk right now," Williams said.

Williams stuck to his forecast for U.S. unemployment to continue to fall this year and for inflation to start rising back to the Fed's 2-percent target.

"Over the next couple of years, we are going to need significant monetary accommodation, a very gradual pace of rate increases, to keep our economy on this 2, 2.25 percent growth path, given the headwinds we are facing especially from abroad," he said.

(Reporting by Ann Saphir; Editing by Chizu Nomiyama)