Fed’s Williams says US economy is not justified after policy shift

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

Comments were delivered from John Williams, president of the Federal Reserve Bank of New York, on Monday amid heightened sensitivity in financial markets to Fed policy. Economic forecasts for central bank officials indicated last week that they expect interest rates to increase in 2023, a year earlier than previously indicated.

Williams said the economy is “getting better all the time,” in some of his most optimistic comments since the pandemic began. But he insisted that the Fed would stick to the terms of its monetary policy framework, which was introduced last August, and which sets a high standard for policy tightening.

“It is clear that the economy is improving at a rapid rate, and the prospects over the medium term are very good.

“But the data and conditions have not advanced enough for the FOMC to change its monetary policy stance from strong support for the economic recovery.”

Comments have sounded more cautious about the possibility of a rapid policy change than other regional Fed chairs since the last FOMC meeting.

Speaking to CNBC on Friday, James Pollard, president of the Federal Reserve Bank of St. Louis, sparked intense excitement Sale in US stocks when he indicated that the central bank may be ready to raise interest rates as early as next year.

Williams said interest rates will not increase until full employment is reached and inflation has risen to 2 per cent and has been “on track” to moderately above that target for some time.

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

“In considering adjusting its position in the future, the FOMC has set terms and procedures that will guide its decision-making,” he said.

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

Robert Kaplan, president of the Federal Reserve Board of Dallas, had a similar tone at the same event.

“It will be much healthier as we are making progress in overcoming the pandemic and achieving our goals to start adjusting these purchases — Treasuries and mortgage-backed securities — sooner rather than later,” Kaplan said.

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