Fed's Wil­liams says US do­ing fine, world isn't

The Pak Banker - - COMPANIES/BOSS -

A mem­ber of the U.S. cen­tral bank's mone­tary pol­icy-set­ting com­mit­tee be­lieves global de­vel­op­ments are pre­vent­ing the world's largest econ­omy from re­turn­ing to nor­mal­ized in­ter­est rates. John Wil­liams, Pres­i­dent & CEO of the Fed­eral Re­serve Bank of San Fran­cisco, said on Mon­day that he be­lieve the U.S. econ­omy is do­ing "quite well," point­ing to sta­ble in­fla­tion and strong em­ploy­ment growth.

"The real is­sue is the global fi­nan­cial and eco­nomic de­vel­op­ments, there's un­cer­tainty about what's hap­pen­ing around the world and how that feeds back to the dol­lar and the U.S. econ­omy," he told ' Asia Squawk Box.'

Wil­liams re­it­er­ated that the cen­tral bank's pol­icy de­ci­sions would re­main data de­pen­dent, sin­gling out in­fla­tion as one of the Fed'stop con­cerns.

"We've been miss­ing our 2 per­cent in­fla­tion goal for three and a half years or so, global dis­in­fla­tion­ary fac­tors are still hold­ing in­fla­tion down...The data to me isn't so much about the la­bor mar­ket con­tin­u­ing to im­prove, I'm very pos­i­tive on that, it's more about in­fla­tion mov­ing back to 2 per­cent in the con­text of very strong head­winds," he ex­plained, cit­ing the strong dol­lar and low com­mod­ity prices.

"We have a do­mes­tic man­date...but that said, we un­der­stand that we're in a global econ­omy so what hap­pens in Brazil or China has a huge im­pact on the U.S. in terms of our in­fla­tion and em­ploy­ment goals." Un­like in Europe and Ja­pan how­ever, slow in­fla­tion won't push the Fed to in­tro­duce a neg­a­tive in­ter­est rate pol­icy (NIRP), Wil­liams noted, adding that the U.S. has other pol­icy tools at its dis­posal, in­clud­ing quan­ti­ta­tive eas­ing and for­ward guid­ance.

"We're in a very dif­fer­ent situation where we''ll be rais­ing in­ter­est rates over the next few years and we're in much stronger eco­nomic po­si­tion [than Europe or Ja­pan] so it's not a tool that I see us us­ing."

His re­marks come as global mar­kets seek clar­ity from Fed­eral Re­serve of­fi­cials for clues on whether the cen­tral bank will hike rates at its April pol­icy meet­ing.

Ex­pec­ta­tions of an in­crease have risen fol­low­ing hawk­ish com­men­tary from sev­eral mem­bers of the Fed­eral Open Mar­ket Com­mit­tee (FOMC) last week, in­clud­ing Wil­liams. At­lanta Fed Pres­i­dent Den­nis Lock­hart and Wil­liams both be­lieve a hike dur­ing the sched­uled April 26-27 re­view is war­ranted, while St. Louis Fed Pres­i­dent James Bullard said "the next rate in­crease may not be far off."

The com­ments spooked Wall Street how­ever, as it con­tra­dicted Fed Chair Janet Yellen's dovish-sound­ing state­ment ear­lier in March.

When asked about the mixed pol­icy mes­sages, Wil­liams in­sisted that the FOMC was united in its vision.

"I would say there's broad agree­ment on the com­mit­tee that our ba­sic strat­egy, which is to grad­u­ally re­move pol­icy ac­com­mo­da­tion and raise in­ter­est rates over the next cou­ple of years, has strong sup­port. The real ques­tion is when we should raise rates, what pace we should raise rates. That's go­ing to be driven by the data so we'll have to wait and see."

Mar­kets will now be pay­ing close at­ten­tion to Yellen's speech at the Eco­nomic Club of New York on Tues­day as well as Fed Vice-Chair Wil­liam Dud­ley's ad­dress on Thurs­day for fur­ther hints on the cen­tral bank's outlook.

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