Fed’s Williams Still Sees 2015 Rate Rise as Growth Trumps Risks

Fed Releases Minutes From June Meeting

Federal Reserve Bank of San Francisco President John Williams said he expects the Fed to raise interest rates this year, playing down international risks to a U.S. economy he said remains on a “solid trajectory.”

“I still believe this will be the year for liftoff, and I still believe that waiting too long to raise rates poses its own risks,” Williams, a voting member of the Federal Open Market Committee this year, said Wednesday in prepared remarks before a conference in Los Angeles.

Williams took a sanguine view of the threat to the U.S. posed by headwinds from China and the Greek crisis, in the first public remarks from a Fed policy maker since Greek voters Sunday rejected austerity measures in return for creditor aid.

Although there are risks from Greece, Williams said they are “unlikely to overturn the otherwise strong fundamentals of the U.S. economy.” In addition, he said the direct exposure of foreign investors to Greece is limited, and the European Central Bank seems to have the “means and will” to limit the financial fallout that could affect the rest of the euro area.

“While a worst-case scenario of a Greek exit from the euro leading to sizable financial and economic impacts on the global economy cannot be ruled out, it remains an unlikely tail risk,” he said.

Turning to China, where sharp declines in the Shanghai Composite Index since mid-June have provoked concern, Williams said officials there have the tools they need to sustain the economy.

China’s Actions

“When the Chinese authorities see growth slowing, they take steps to keep it near their target level,” Williams said. “China has shown that it has both the will and the leeway to take the necessary policy actions.”

In contrast to gloomy news from abroad, Williams painted a fairly upbeat picture of the U.S. outlook to explain why he didn’t think international turmoil would prevent the Fed from raising rates this year for the first time since 2006.

“Things are looking good,” Williams said. “I see growth on a solid trajectory, full employment just in front of us, wages on the rise, and inflation gradually moving back up to meet our goal.”

Employers added 223,000 new jobs in June, yet wages stagnated and the labor force shrank. By contrast, the Labor Department’s employment cost index showed private-sector wages climbing 0.7 percent in the first quarter and up 2.8 percent in the 12 months through March, the biggest gain in more than six years.

“Now that wage growth is starting to take off, based on the most comprehensive indicators, it offers further confirmation that the labor market is nearly healed,” Williams said. “All signs point to a labor market that is zeroing in on full employment.”

Prices have yet to show a clear sign of advancing, which Williams cited as a concern. The Fed’s preferred gauge of price pressures rose just 0.2 percent in May from a year earlier.

“I still don’t have everything I want: Inflation is still well below our 2 percent goal,” Williams said. Even so, he sees “all the factors in place to meet our inflation goal by the end of next year” as the economy nears full employment and wages pick up.

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