New York Fed's Williams Stresses Flexible Approach to Setting Interest Rates -- Update

Date : 11/19/2019 @ 5:06PM
Source : Dow Jones News

New York Fed's Williams Stresses Flexible Approach to Setting Interest Rates -- Update

By Nick Timiraos 

WASHINGTON -- Federal Reserve Bank of New York President John Williams said the central bank isn't committed to any particular policy path in the months ahead, even though he and his colleagues are comfortable right now with keeping rates steady after cutting them three times this year.

"The economy is in a very good place," Mr. Williams said at a meeting of the Securities Industry and Financial Markets Association, a brokerage-industry trade group, on Tuesday in Washington. "I think we have monetary policy in the right place. The key thing is we're not locked into any specific decision" at policy meetings in the months ahead.

Mr. Williams is vice chairman of the rate-setting Federal Open Market Committee. It met at the end of October and cut its short-term benchmark rate for the third time since July to a range between 1.50% and 1.75%. Officials have lowered rates to cushion the economy against the risks of a sharp slowdown from decelerating global growth and a drop in business investment amplified by the U.S.-China trade war.

Most of his colleagues, including Fed Chairman Jerome Powell in congressional testimony last week, have said the Fed can hold steady for now, indicating the central bank is likely to leave its policy rate unchanged at the final meeting of the year, on Dec. 10-11.

But Mr. Williams's remarks, during a moderated discussion on stage and then to reporters afterward, underscored that a wait-and-see stance doesn't mean the Fed is permanently on hold. Fed officials have said they would consider cutting rates again if there was a "material reassessment" of their current outlook for moderate growth and a strong labor market.

Mr. Williams told reporters that the central bank shouldn't overreact to individual data points and should instead examine how the economy is likely to perform over the next year or two. Most Fed officials think the U.S. economy's long-run growth rate is around 2%, or slightly below.

"Are these global factors or other things causing the economy to slow more than expected, and slow below trend growth on an ongoing basis? That would be an argument for somewhat more accommodation," said Mr. Williams. "Similarly, if inflation were to move in the wrong direction on a sustained basis, then that would be an argument to consider more accommodation."

Using a measure that excludes volatile food and energy prices, inflation on a 12-month basis has been running at around 1.7% in recent months, according to the Fed's preferred gauge. The central bank's goal is 2%.

Mr. Williams didn't identify any scenarios that would lead the Fed to raise rates in the near term. "I'm definitely watching more for some of the downside kind of risks in the outlook now," he said.

Mr. Williams stressed the importance of the Fed's flexibility this year. After raising its benchmark four times last year to guard against undesirable levels of inflation or financial bubbles, the Fed scrapped plans early this year to keep lifting rates. It then lowered rates beginning in July.

"We've proved this year that when the economic facts changed, we change our views on the economy and" interest-rate policy, Mr. Williams said.

Write to Nick Timiraos at


(END) Dow Jones Newswires

November 19, 2019 11:51 ET (16:51 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.

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