(Bloomberg) — Federal Reserve Bank of New York President John Williams said that given current signs of a very strong labor market, the U.S. central bank is nearing a decision to begin gradually raising interest rates from close to zero.
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“The next step in reducing accommodative monetary policy in the economy will be to gradually bring the target range for the federal funds rate from its current very low level to more normal levels,” Williams said Friday at a virtual event hosted by the Council on External relationships. “Given clear signs of a very strong labor market, we are moving closer to a decision to kick-start that process.”
In another virtual event hosted by the New York Times, San Francisco Fed President Mary Daly said officials are “going to have to adjust policy” because there aren’t many signs that inflation, which is running its highest level in almost four decades, will remedy itself.
His words – which close a week in which the president of the Fed, Jerome Powell, and Lael Brainard, nominee for vice president of the monetary authority, emphasized the importance of bringing the highest inflation in a generation under control – were the last Scheduled statements from policymakers ahead of the January 25-26 meeting of the Federal Open Market Committee (FOMC).
Several other officials have gone further, citing the need to raise rates in March and make four or even five hikes this year to control inflation, marking a clear change in outlook from just a few weeks ago. In December, US central bankers forecast that rates would rise three times this year and accelerated the pace of tapering their asset purchases to conclude the program in mid-March.
Williams declined to say how many rate hikes it would take for the Fed to reach its 2% inflation target and did not provide a specific timeline for when it will start raising rates. The “timing of such decisions will be based on careful consideration of a wide range of data and information, with a clear view of our goals of maximum price stability and employment,” it said.
However, he expressed confidence that the economy could handle the removal of the Fed’s pandemic support.
“The economy is well positioned in terms of where we are now with respect to employment and GDP, and it makes sense for monetary policy to evolve as the economy has,” Williams told reporters later. “Actually, we’re in a good position to do it in a way that’s not disruptive.”
The omicron variant of the coronavirus could slow economic growth in coming months, intensifying labor supply challenges and supply chain bottlenecks, Williams said. But once the omicron wave subsides, “the economy should return to a solid growth trajectory and these supply constraints on the economy should ease over time.”
Fed’s Williams Says Decision on Rate Increases ‘Approaching’
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