On December 14, the Federal Reserve raised the federal funds rate for the first time in a year. San Francisco Federal Reserve Bank President John C. Williams, in a recent interview with The New York Times, voiced his support for the change based on data shared with the Federal Open Market Committee (FOMC) and current economic outlook for the next two years.
“The unemployment rate has fallen to well below 5 percent, core inflation has been edging up over the last year or so, and other signs of good momentum, such as job growth, made a very convincing case to make this small step at this time,” he said.
Williams expects that in 2017 the economy will “grow roughly as it did this year, unemployment is going to edge down a little bit, inflation moving back to 2 percent, and that calls for gradual removal of policy accommodation.”
The expected normalization of interest rates reflects a healthy U.S. economy. But this is occurring in an environment of persistently low global interest rates, and Williams recognizes that what happens abroad can influence the domestic outlook and monetary policy. He believes a greater discussion is needed around how to approach a major economic downturn in the future, with more emphasis on the interconnections between major economies.
“Weakness abroad spills over to the United States and then we can’t offset that as effectively,” he said. “If we had a higher inflation target and didn’t come to the zero lower bound, we’d be free to adjust our policy to offset any effects coming from abroad, and that has a positive influence on the global economy.”
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Views expressed by President Williams are his alone and do not necessarily reflect those of anyone else in the Federal Reserve System.