Fed's Williams: Fed Should Continue Slow Rate Rises Over Next Year

By Michael S. Derby Features Dow Jones Newswires

Federal Reserve Bank of San Francisco President John Williams called on Wednesday for slow and steady rate rises, but didn't give any hints when he would next like to see them go up.

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"As long as the data continue to show steady growth and we see the uptick in inflation that we're expecting, my own view is that we should continue to raise interest rates slowly over the coming year," Mr. Williams said in the text of a speech to be given in Phoenix.

"If we don't move interest rates back up to more normal levels, we risk undermining the sustainability of the expansion and creating conditions that could lead to a recession down the road," he said.

Mr. Williams, who isn't currently a voting member of the interest-rate-setting Federal Open Market Committee, has for some time been a supporter of moving monetary policy back to a more normal setting given solid job gains and steady growth, and what he sees as the strong likelihood that will continue.

The Federal Open Market Committee is due to meet in the middle of next month. Most observers say they expect to see officials boost for a third time this year what is now a 1% and 1.25% overnight target rate range.

On Tuesday, as part of his confirmation hearing to become Fed chair next year, Fed governor Jerome Powell told legislators the case for a December rate rise "is coming together." Outgoing Fed Chairwoman Janet Yellen on Wednesday said gradual rate rises are likely provided the economy performs as expected.

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The challenge for policy makers is that as they press forward with rate rises, inflation has remained stubbornly short of their 2% inflation rise target. For officials like Minneapolis Fed leader Neel Kashkari and others, the Fed should wait for more solid evidence of higher inflation before acting again.

Mr. Williams, however, remains confident that a strong economy and job market will eventually get inflation back toward desired levels.

"With the economy doing so well this year and based on the historical pattern, I expect to see a rise in inflation in 2018," Mr. Williams said. He noted "it often takes a while for wages and prices to respond to the tightening labor market."

Mr. Williams's outlook on the economy was upbeat. He said he expects U.S. growth to come in at 2.5% this year before easing back a bit in coming years, adding: "I see the economy continuing on a moderate growth path over the next few years."

What is now a jobless rate just above 4% should fall to 3.75% next year, Mr. Williams said.

Write to Michael S. Derby at michael.derby@wsj.com

(END) Dow Jones Newswires

November 29, 2017 14:07 ET (19:07 GMT)