Fed’s Williams sees at least 3 rate hikes in 2017

SEOUL: San Francisco Federal Reserve Bank president John C. Williams said yesterday he sees a total of three interest rate increases for this year as his baseline scenario, but views four hikes as also being appropriate if the US economy gets an unexpected boost.

“There is potential for upside occurrences in the economy. One big question mark is if there is big fiscal stimulus or other changes in the outlook that we see the economy is doing better than we thought,” said Williams, who was speaking on the sidelines of a forum held by the Bank of Korea in Seoul.

Williams, who does not have a vote on the Federal Reserve’s policy committee this year, said the end point of rate hike-cycle is probably just below 3%. He emphasised that the Fed will carry out its rate increases in a predictable and transparent manner to minimise any negative spillovers to emerging economies. “In the end we are only moving gradually and to a relatively low level, 3% or less,” he said.

In March the Fed lifted rates a notch, its third tightening since the 2007-2009 financial crisis and recession.

Forecasts from Fed officials suggest a median of two more hikes are planned before year end, and futures markets are pricing in a roughly 90% chance of a 25basis-point hike later this month to a range of between 1% and 1.25%.

Williams said he does not expect any changes in fiscal policies this year to impact the US economy in 2017 in any meaningful way, adding the effects of such policy changes will likely influence growth only in 2018 and 2019. He also reiterated his view that the US economy is doing “very well”, though he said that inflation currently running below the Fed’s 2% target is a challenge for monetary policy. – Reuters