The U.S. central bank's baseline projection of four rate hikes in 2016 is more like a "gentle ascension" rather than rocket "shooting straight up," said San Francisco Fed President John Williams, on Friday. In a speech to the California Bankers Association in Santa Barbara, Williams said the expected path is about half the pace of the last tightening cycle, and means it will take three years before the target federal funds rate hits "our cruising altitude." Investors are only pricing in two rate hikes this year. The San Francisco Fed president, who is not a voting member this year but is seen an a member of Fed Chairwoman Janet Yellen's inner circle, said the central bank plans to shrink its balance sheet "organically" through maturation of assets rather than outright sales. This means it will take at least six years to shrink the balance sheet back to normal, he said.
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