Exclusive: Williams, Fed, says new economic outlook is needed for rate hikes

NEW YORK (Reuters) – Fed chairman in New York, John Williams, said on Tuesday that he was comfortable with the current level of US interest rates and that he was "out of control. it would not be necessary to raise it unless growth or inflation returns to a higher speed.

FILE PHOTO: John Williams gestures at a press conference in Zurich, Switzerland, September 22, 2017. REUTERS / Arnd Wiegmann

In an interview with Reuters, Williams estimated that the Fed would continue to reduce its bond portfolio until the end of next year. He also stated that he believed that rates had reached his current view on a lower "neutral" level, with a stabilization of growth and unemployment and inflation, at least a little weaker than planned.

When asked if he would need some kind of shock to resume rate hikes, he said that it would take one or more of these factors to surprise upward.

"I do not think it would take a lot of change, but it would be a different perspective for growth or inflation" to return to higher rates, Williams, one of the three vice presidents of the Fed and a key spokesman for the rate policy, told Reuters.

Williams' comments, formulated just weeks after the quarterly rate hike by the central bank was interrupted, underscored how difficult it was to tighten monetary policy and suggested that such a move might not happen sooner. .

The Fed could also maintain bank reserve levels much closer to current levels than previously thought, Williams said.

In addition to rising interest rates, Fed policymakers are finalizing plans on how to end the reduction of their balance sheets, including bank reserve holdings strengthened in part by the Fed's need for money to buy bonds in order to end the global financial crisis. crisis a decade ago.

Williams said the so-called balance-sheet transfer could end when banks' reserves reach "perhaps a trillion dollars in reserves, if not a little more," about 600 billion less than current levels. This implies that runoff will continue at least in the next year at its current rate.

The figure is "an estimate today of the amount of reserves that will be kept in the system in the future – but again, we are learning and we will have a closer contact with that, "he said.

Williams, who is vice-chair of the Federal Open Market Committee, voted at the group's meeting, said policymakers are "very well placed" in politics, with rates close to neutrality, a good American economy placed and pressure on moderate prices.

"Monetary policy is what it should be," he said. "That's about what I think about what neutral interest rates are."

After its last meeting, Fed policymakers announced that their three-year policy tightening may have been over due to sudden prospects for global growth and stalemate on the government's trade and budget negotiations.

The Fed raised interest rates three times in 2017 and four times last year, going from 2.25% to 2.5% at its last meeting in 2018 in December.

More details on this political meeting in late January are expected when the Fed releases reports of its deliberations on Wednesday.

Recently, Loretta Mester, President of the Federal Reserve of Cleveland, and Fed Governor Lael Brainard, both said they were in favor of the US central bank putting an end to the liquidation of its obligations this year. year.

The Fed's balance sheet has soared to more than $ 4 trillion following the 2007-09 recession, but policymakers have begun to reduce its holdings of bonds in the last months of 2017.

More details on this political meeting in late January are expected when the Fed releases reports of its deliberations on Wednesday.

Report by Howard Schneider, Jonathan Spicer and Trevor Hunnicutt; Edited by Chizu Nomiyama

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