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Fed's Williams sees gradual rate hikes to keep economy on track

Wednesday, January 18, 2017 - 07:34

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Further gradual Federal Reserve interest-rate increases are warranted to keep the US economy on a sustainable course and avoid excess inflation or damaging asset bubbles, said San Francisco Fed President John Williams.

[SACRAMENTO] Further gradual Federal Reserve interest-rate increases are warranted to keep the US economy on a sustainable course and avoid excess inflation or damaging asset bubbles, said San Francisco Fed President John Williams.

"In the context of a strong economy that has reached our maximum employment goal and with inflation nearing our price stability goal, it makes sense that the FOMC has undertaken a process of raising interest rates," Mr Williams said Tuesday in Sacramento, California, referring to the policy-setting Federal Open Market Committee. "Looking ahead, further gradual increases in the target fed funds rate will likely be appropriate."

Fed officials lifted the benchmark rate to 0.5 to 0.75 per cent in December, their second increase in 12 months. Their economic projections pointed to three quarter-point rate hikes in 2017 if the economy stays on the expected trajectory. Mr Williams said he views risks to his outlook as pretty evenly split.

"Although much of the discussion of late has been about uncertainty regarding fiscal and other federal policies, there are numerous other factors both domestic and abroad that may cause our economy to do better or worse than currently predicted," Mr Williams said in his prepared remarks. "But I, like most of my colleagues, view these as both broadly similar in magnitude to the past and roughly balanced between the upside and the downside."

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Some of his colleagues have said they see risks tilted to the upside as a new Republican president and Congress usher in fiscal policies that could include regulatory reform, tax cuts and infrastructure spending with potential to spur growth and inflation.

Mr Williams, who isn't an FOMC voter this year, reiterated Tuesday that he hopes to see rates increase so that they can prevent the economy from overheating.

"History teaches us that an economy that runs too hot for too long can generate imbalances, eventually leading to excessive inflation, asset market bubbles, and ultimately economic correction and recession," he said.

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