Fed's Williams Joins With Other Officials Leaning Toward Rate Cuts --Update
12 July 2019 - 07:08AM
Dow Jones News
By Michael S. Derby
ALBANY, N.Y. -- Federal Reserve Bank of New York President John
Williams said the case for lowering short-term interest rates is
getting stronger, opening the door to his support for easier
monetary policy at the end of this month.
"If anything, relative to earlier in the year, the conditions,
the arguments for adding policy accommodation have strengthened
over time, and I think that's the way I continue to view it," Mr.
Williams told reporters after delivering a speech at the University
at Albany.
Mr. Williams said last year was a good year for growth even as
inflation continued to fall short of the Fed's 2% target, and at
the start of this year, his read on the economy was that "the risks
seemed relatively balanced."
But since then, the outlook has darkened a bit: "We've got the
uncertainties, especially related to trade and global growth. We
have issues around inflation expectations being soft, obviously
inflation continuing to run below 2%," and all of that added
together suggests monetary policy may need to move to a setting
that is more supportive of growth.
Mr. Williams's comments on the short-term rate outlook came in a
busy week for central bank communications, and as markets expect
the central bank to lower rates at its July 30-31 Federal Open
Market Committee meeting.
In comments before Congress over Wednesday and Thursday, Fed
Chairman Jerome Powell opened the door to lowering the
federal-funds rate target range from between 2.25% and 2.5%,
although he didn't commit to action. Financial markets broadly
expect to see a quarter-percentage-point easing at month's end.
"The bottom line is the economy is in a very good place, and we
want to use our tools to keep it there," Mr. Powell said in
testimony before a Senate panel Thursday.
Mr. Williams told reporters that part of the reason for lowering
rates would be to help keep in place a shift in overall financial
conditions that is itself tied to investors' expectation of rate
cuts.
"The markets expect cuts so therefore you see lower mortgage
rates, you see lower interest rates, and stronger financial
conditions broadly, and I think that contributes to more consumer
spending and business spending, " Mr. Williams said.
The New York Fed chief, in his prepared speech, said that "the
economy is in a good place." But he added, "After surging ahead
last year, the U.S. economy appears now to be growing at a more
moderate pace," with growth in 2019 likely to be around 2.25%. He
said that even with slower growth, his expected path of growth was
still above the economy's long-term sustainable path.
Mr. Williams also discussed inflation weakness, saying: "The
major challenge with inflation that's persistently lower than 2% is
that low inflation feeds into inflation expectations."
"If inflation stays too low, people will start to expect it to
stay that way, creating a vicious cycle, pushing inflation further
down over the longer term, and making it harder to achieve our
goals through monetary policy," he said.
The official pointed to moderating business-investment levels,
falling factory production and slower international growth as
additional issues. "The outlook for growth outside the United
States has dimmed, which will weigh on demand for U.S. products,"
he said.
Jimmy Vielkind contributed to this article
Write to Michael S. Derby at michael.derby@wsj.com
(END) Dow Jones Newswires
July 11, 2019 16:53 ET (20:53 GMT)
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