Three interest rate hikes this year makes sense, says key US Fed banker

Singapore

THREE interest rate hikes this year by the US Federal Reserve makes sense given the strong labour market in the US, and an economy that is doing well, said John Williams, president and CEO of the Federal Reserve Bank of San Francisco.

"The US economy is about as close to the Fed's dual mandate goals as we've ever been," Mr Williams said in Singapore on Monday.

Mr Williams said that with US unemployment at 4.4 per cent and inflation on track to reach the Fed's 2 per cent goal next year, the data indicates that the US economy has fully recovered from the recession.

Mr Williams is in Singapore for an annual Symposium on Asian Banking and Finance hosted by the Federal Reserve Bank of San Francisco and the Monetary Authority of Singapore.

"It's more important than ever for monetary policy to work towards what I like to call a 'Goldilocks economy' - an economy that doesn't run too hot or too cold."

He said that three rate increases in 2017, including the one in March and the aim of monetary policy in the US must be "to keep the economic expansion on a sound footing that can be sustained for as long as possible".

"My view still is that three rate hikes this year makes sense," said Mr Williams who spoke to reporters before his symposium speech.

"Nothing has pushed me away from that. We should continue this gradual process of policy normalisation in interest rates."

The normalisation of US monetary policy is the most telegraphed monetary policy of our lifetimes, said Mr Williams, who took over for Fed chair Janet Yellen at the San Francisco Fed in 2011 when she joined the Board of Governors.

Mr Williams, who is seen as an influential voice at the US central bank, next votes on monetary policy in 2018.

As president and CEO of the Federal Reserve Bank of San Francisco, he leads the largest of 12 regional banks in the Fed System. The Federal Reserve Bank of San Francisco covers about one-fifth of the US population and economy.

"Today, the US unemployment rate is 4.4 per cent - meaning that we've reached and even exceeded the full employment mark.

"Meanwhile, although inflation has been running somewhat below the Fed's goal of 2 per cent, with the economy doing well and some of the factors that have held inflation down waning, I expect we'll reach that goal by next year," he said.

Mr Williams said that a gradual, transparent approach to normalisation will ultimately benefit both the US and global economies.

"In an interconnected global economy, when one country takes action to make its economy more sustainable and resilient, that adds to the sustainability and resilience of the global economy in turn," he said. "The last thing we want to do is to fuel unnecessary or avoidable volatility or disruptions whether we're talking about domestic markets or international markets.

"That's why we're taking a gradual approach to normalisation and why we're being very clear, transparent, and open about how we're making decisions. In fact, this is the most telegraphed monetary policy of our lifetimes."