Fed's Williams Isn't Changing Views After Asset-Price Gyrations

  • San Francisco chief still sees case for gradual hikes in 2018
  • Even four rate increases is ‘very gradual,’ he tells reporters

CIBC's Stretch Says the Fed Can Look Through This Volatility

Federal Reserve Bank of San Francisco President John Williams said he isn’t altering his view on the U.S. economy or preference for a continued gradual rate hike path after several days of volatile markets.

“It’s not about the market themselves, it’s about -- basically, what are they telling us about the likely path of the economy?" Williams told reporters after a speech in Hawaii. “At this point, I don’t see any of the movements in asset prices of late to fundamentally change my view of the economy. I think the economy is on a very solid growth path. In fact, I think some of the market reaction is to the fact that the economy is doing well.”

Treasury yields are near a four-year high and volatility remains elevated after a week that also saw major swings in stock prices. The action seems to owe at least in part to investors’ concern that the Fed may pursue additional rate increases this year as inflation finally picks up toward the central bank’s 2 percent goal. Fed officials have waved off the gyrations, repeating that with low unemployment and an outlook for gradually rising inflation, economic fundamentals are in a sweet spot.

“We should have a gradual increase in interest rates this year, and for the next year,” Williams said. “Right now, I’m not taking any particular signal from it.”

Williams said that recent readings which suggest wage gains are firming are "consistent" with what he was already expecting, and served as confirmation of the idea that the U.S. labor market is strong.

Williams, who votes on Fed monetary policy this year, has spoken of three or four rate increases as his base case, and said Wednesday that he’s not leaning toward one path or the other.

“The economy clearly can handle gradually rising interest rates, I’m not really worried about the downside risks of the economy slowing too much,” he said. “Even four rate increases is very gradual.”

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