The Fed should continue to increase rates slowly, says Williams



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PHOENIX (Reuters) – With the fall in unemployment in the United States, which is pushing inflation, the Federal Reserve should keep raising interest rates gradually, San Francisco Federal Reserve Chairman John Williams said on Wednesday.

FILE PHOTO – San Francisco Federal Reserve Chairman John Williams speaks to Reuters in San Francisco, California, USA. UU September 27, 2016. REUTERS / Stephen Lam / File Photo

"As long as the data continues to show steady growth and we see the rebound in inflation that we are expecting, my view is that we should continue to raise interest rates slowly over the next year, "Williams said in remarks prepared for delivery to an economic forecast lunch.

The Federal Reserve is expected to raise rates when lawmakers meet next month and Williams has said it supports steady and gradual rate increases as long as the economy stays on its current path. Fed Chair Janet Yellen signaled her expectation of new rate hikes in Wednesday's testimony.

Williams, who will vote on monetary policy next year when Gov. Jerome Powell is expected to take over from Yellen as chairman of the Federal Reserve, said he expects the US economy to grow 2.5 percent this year and slower after that. Unemployment, now at 4.1 percent, should continue to fall next year and hit bottom at around 3.75 percent, he said.

Although inflation has remained well below the Fed's 2 percent target, baffling some Fed officials like Yellen because inflation generally strengthens as the economy gains momentum, Williams said the weakness It is easily explained.

Health costs of slow growth and falling prices in other sectors such as the prices of mobile phone plans that are not very sensitive to economic cycles have compensated for price increases in other sectors, researchers said. the San Francisco Fed in a document published this week.

To boot, Williams said Wednesday, it often takes 12 months for inflation to rebound after the economy shifts to a higher gear.

"The next time you see a headline about stubbornly low inflation, you can smile at yourself, knowing that the mystery is not so mysterious after all," he said. "With the economy doing so well this year and based on the historical pattern, I expect to see an increase in inflation in 2018."

Reports by Ann SaphirChizu Nomiyama Edition

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