Fed’s Williams Says US Economy Does Not Justify Policy Change Yet

A senior Federal Reserve official said the US economy was not yet ready for the central bank to start withdrawing its large monetary support, although the outlook had become more optimistic.

The comments by John Williams, chairman of the Federal Reserve Bank of New York, came on Monday amid high sensitivity in financial markets to Fed policy. Economic projections by central bank officials last week indicated that they were planning to raise interest rates in 2023, a year earlier than expected.

Williams said the economy “is improving all the time,” in some of his most optimistic remarks since the start of the pandemic. But he insisted the Fed would stick to the terms of its monetary policy framework, introduced last August, which sets the bar high for policy tightening.

“It is clear that the economy is improving at a rapid pace and the medium term outlook is very good.

“But data and conditions have not improved enough for the Federal Open Market Committee to shift its monetary policy stance in favor of strong support for the economic recovery.”

Comments seemed more cautious about the prospect of a rapid policy change compared to those of other regional Fed chairmen since the last FOMC meeting.

Speaking to CNBC on Friday, James Bullard, chairman of the St Louis Fed, sparked a lively clearance sale in US stocks when he suggested the central bank might be ready to raise interest rates as early as next year.

Williams said interest rates would not be increased until full employment was achieved and inflation reached 2 percent and was “on track” to moderately exceed. this goal for a while.

He also said any reduction in the Fed’s $ 120 billion monthly asset purchases would not take place until “further substantial progress” was made on those fronts.

“In considering how to adjust its position in the future, the FOMC has set conditions and measures that will inform its decision-making,” he said.

On Monday, at an event hosted by the Official Forum of Monetary and Financial Institutions, a think tank, Bullard reiterated the need for the Fed to start considering reducing its bond purchases in the face of rising inflation. .

Robert Kaplan, chairman of the Dallas Fed, spoke a similar tone at the same event.

“It would be healthier as we move forward in the fight against the pandemic and meet our goals of starting to adjust these purchases – treasury bills and mortgage-backed securities – as soon as possible,” Kaplan said.

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