Fed’s Williams Sees Rate Rise This Year as Growth to Recover

Updated on
Federal Reserve Bank Of San Francisco President John Williams
Federal Reserve Bank Of San Francisco President John Williams. Photographer: David Paul Morris/Bloomberg

Federal Reserve Bank of San Francisco President John Williams said the U.S. will likely raise interest rates later this year as the world’s biggest economy recovers from a weak first quarter.

The Fed will probably increase rates gradually and move them to normal levels over the next few years, he said in answer to questions after speaking at a regulatory symposium in Singapore Thursday. An increase is on the table at every meeting, including June’s, he said.

“I expect they will be raising rates later this year,” Williams told reporters. “The U.S. economy’s doing well, we’re moving back towards our goals.”

Williams’s comments echo those of Fed Chair Janet Yellen, who said last week she still expects to raise borrowing costs this year if the economy meets her forecasts, with a gradual pace of tightening to follow. After a slow start to the year, recent data show the economy is improving, with advances in orders for capital equipment, the housing market gaining traction and consumers feeling a little more confident.

“The rest of the year is probably going to be better than Q1 and there’ll be a bounce back,” said Williams, who votes on monetary policy this year. “I see above-trend growth for the rest of the year and therefore continued improvement in the labor market. The GDP growth for the whole year is probably going to be around 2 percent.”

More Optimistic

Former Fed Chairman Ben S. Bernanke, speaking at an event in Sydney Thursday, shared the view that the economy is recovering.

U.S. households are “really in pretty good shape” and consumers are “much more optimistic than they’ve been for some time,” Bernanke said. There’s “plenty of scope for the economy to keep growing.”

Williams said he himself is in “wait-and-see” mode and is getting clarity on the first-quarter gross domestic product performance, which was anomalously low and can’t be explained by bad weather alone. He doesn’t put a lot of weight on housing starts data, though employment and labor market data give confidence of a good, moderate growth trajectory, he said.

The U.S. has the right strategy to get back to full employment, he said, predicting continued improvement in the labor market and GDP growth of above 2 percent for the rest of the year.

Williams sees interest rates “moving up in ’15, ’16 and ’17 and coming close to long-run estimates, which are between 3.5 and 4 percent,” he said to reporters. “If you look at those forecasts back from March you’ll see an adjustment over time from where we are now, gradually towards this 3.5 to 4 percent and normal level of Federal Funds rate.”

Williams, 52, has led the San Francisco Fed since 2011. His district includes Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Utah and Washington.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE