Beckner: Designated Dudley Successor Lays Out Case for Continued Rate Hikes

Written exclusively for InTouch Capital Markets

6th April 2018

By Steven K. Beckner

San Francisco Federal Reserve Bank President John Williams made clear Friday he will back continued gradual but steady monetary tightening when he becomes New York Federal Reserve Bank President in a few months.

Echoing Chairman Jerome Powell’s commitment to further “gradual” interest rate hikes, he said the economy needs and can withstand higher rates along the lines projected by the Fed’s rate-setting Federal Open Market Committee on March 21^st.

Williams, a voting member of the FOMC who will become its vice chairman when he succeeds William Dudley as New York Fed President on June 18, predicted the economy will grow 2.5% this year and next. Since that is 0.75 more than his estimate of the economy’s non-inflationary growth potential, he said “we need to continue on the path of raising interest rates” to “keep things on an even footing and reduce the risk of us getting to a point where the economy could overheat, and create problems that could end badly.”

Referring to the FOMC’s federal funds rate projections of “three to four rate increases this year and further gradual rate increases over the next two years,” Williams said “this is the right direction for monetary policy. This gradual process of removing the monetary stimulus put in during the recession is designed to keep the healthy expansion on track, maintain inflation near our 2 percent goal, and to minimize the risk that the economy could overheat down the road.”

Williams observed “the rate increases we have put in place so far have not stalled the economy. In fact, the economy continues to steam ahead.” So, he’s “confident that we can carry on the process of gradually moving interest rates up over the next two years while seeing solid growth and historically low rates of unemployment.”