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

A senior Federal Reserve official said the US economy is not yet ready for the central bank to withdraw its massive monetary support, even though the outlook has brightened.

The comments of John Williams, President of the Federal Reserve Bank of New York, were made on Monday amid the high sensitivity of the financial markets to Fed policy. Economic forecasts by central bank officials last week signaled that they expected a rate hike in 2023, a year earlier than previously stated.

Williams, in some of his most optimistic remarks since the pandemic began, said the economy was “getting better and better.” However, he insisted that the Fed stick to the terms of its monetary policy framework introduced last August, which sets a high bar for policy tightening.

“It is clear that the economy is improving rapidly and the medium-term prospects are very good,” he said.

“But the dates and conditions are not advanced enough for the Federal Open Market Committee to change its monetary policy stance to strongly support the economic recovery.”

The comments came ahead of Jay Powell’s planned testimony in Congress on Tuesday. In the Fed chairman’s prepared remarks, released late Monday, Powell pointed to a “sustained improvement” in the economy, but highlighted the “uneven” pace of the labor market recovery and the ongoing risks of the pandemic, including the Slowdown in the rate of US vaccinations.

The Fed chair added that “inflation is likely to fall back towards our longer-term target,” reiterating his view that the current rise in consumer prices will be temporary.

Both Powell’s prepared statement and Williams’ remarks suggest that Fed senior leaders are more cautious about the prospect of a quick policy change than some of the other regional bank presidents who made comments after last week’s FOMC meeting.

Speaking to CNBC on Friday, James Bullard, president of the St. Louis Fed, suggested that the central bank might be ready to raise rates as early as next year, which is a sharp hike Clearance sale for US stocks.

Williams said that interest rates would not rise until full employment and inflation spike to 2 percent and that it is “on the way” to moderately exceed that target for some time.

He also said a reduction in the Fed’s $ 120 billion monthly asset purchases would not come until “substantial further progress” is made on those fronts.

“In considering adjusting its stance in the future, the FOMC has defined conditions and actions that will influence its decision-making,” he said.

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

Robert Kaplan, chairman of the Dallas Fed, adopted a similar tone at the same event.

“It would be healthier as we make progress in managing the pandemic and in meeting our goals of adjusting these purchases – government bonds and mortgage-backed securities – sooner rather than later,” Kaplan said.

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