Fed's Williams: Now Is Time for Fed to Show 'Prudence, Patience and Good Judgment' -- Update
18 Gennaio 2019 - 4:51PM
Dow Jones News
By Michael S. Derby
SOMERSET, N.J. -- New York Fed President John Williams said
Friday what happens with short-term interest rates and the central
bank's balance-sheet drawdown will be driven this year by how the
economy performs.
As such, Mr. Williams didn't offer firm guidance for the Fed's
monetary policy plans, even as he expects to see the economy do
well again in 2019. "The economy is strong, the outlook is healthy
and my number one priority is using monetary policy to keep it that
way," Mr. Williams said in a speech given before a banker's group
in New Jersey.
For the Fed, "the approach we need is one of prudence, patience
and good judgment. The motto of 'data dependence' is more relevant
than ever," the policy maker said.
In addition to helming the regional Fed bank closest to
financial markets, Mr. Williams also serves as vice chairman of the
interest-rate-setting Federal Open Market Committee. His comments
Friday were his first formal speech on the outlook since a
television interview following the Fed's December policy meeting
that resulted in the central bank's fourth rate rise in 2018. That
move lifted the central bank's overnight target-rate range to
between 2.25% and 2.50%.
At that gathering Fed officials penciled in two rate increases
for 2019. But a range of officials, from Chairman Jerome Powell
through to the new voting member of the FOMC this year, have said
over recent weeks the central bank faces no urgency to raise rates.
Fed officials have acknowledged that volatile markets focused on
downside risks, a slowing global economy and a lack of notable
upward inflation pressures gives them space before making another
decision on interest rates.
In his speech, Mr. Williams explained the path for rates isn't
set. He also said the Fed's effort to shrink its holdings of bonds
bought during the financial crisis, now effectively on autopilot,
could be tweaked if need be.
"If circumstances change, I will reassess our choices regarding
monetary policy, including the path of balance-sheet
normalization," Mr. Williams said. "Data dependence applies to all
that we do. And, as always, if the outlook deteriorates in a
material way, we stand prepared to deploy all our policy tools as
appropriate in support of the economy."
The official explained strong growth could call for more rate
rises, but he added "if conditions turn out to be less robust, then
I will adjust my policy views accordingly."
Still, Mr. Williams remained upbeat about what lies ahead. "A
softer economic outlook doesn't mean we should prepare for doom and
gloom," and it is likely that growth will come in between 2% and
2.5% in 2019. He said that sort of performance would be "consistent
with a healthy, growing economy."
Mr. Williams said the job market is "strong" and called recent
wage gains "encouraging." He added he expects inflation to hit the
Fed's 2% target this year, but said "I don't see any worrying signs
of inflationary pressures building."
The economy is "as good as it gets" in terms of the Fed's job
and inflation goals, Mr. Williams said.
But the Fed official also acknowledged the pessimism seen in
some parts of financial markets and said, "I wish I could now tell
you with certainty what will happen to the economy, but anyone who
promises they can see into the future is a charlatan."
Mr. Williams noted the still-unresolved government shutdown tied
to President Trump's, so far, inflexible demand for border-wall
funding will affect the economy. And the longer it goes on, the
more significant the impact, Mr. Williams said. He added the
shutdown is also on track to prevent the Fed from getting vital
data that help it understand what's happening with the economy.
Write to Michael S. Derby at michael.derby@wsj.com
(END) Dow Jones Newswires
January 18, 2019 10:36 ET (15:36 GMT)
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