Williams preaches patience


With growth slowing and uncertainty in the economy, Federal Reserve Bank of New York President John Williams said Friday, data will steer his view of future Fed activity.

“The economy is strong, the outlook is healthy, and my number one priority is using monetary policy to keep it that way,” Williams said in a speech in New Jersey, according to prepared text released by the Fed. “In short, I’m watching, listening, and prepared to adjust my views depending on the data.”

Federal Reserve Bank of San Francisco President John Williams.

Bloomberg News

Choosing one word to describe how the Fed should respond, he selected: “carefully.”

Unlike last year, when a strong economy and quite low interest rates made gradual rate increases “the obvious and necessary choice,” the “tailwinds have lost their gust, interest rates are closer to normal levels, and inflation is tame. The approach we need is one of prudence, patience, and good judgment. The motto of ‘data dependence’ is more relevant than ever,” he said.

If the economy continues to produce growth “well above sustainable levels,” more rate hikes would be in order “at some point,” Williams said. “However, if conditions turn out to be less robust, then I will adjust my policy views accordingly. I assure you that I have my eyes wide open and my ear to the ground when it comes to thinking about how the economic outlook will unfold in the year ahead, and as ever I’ll be guided by the data in all its forms.”

In terms of data dependence, Williams said, it’s not just major economic indicators. “I’m looking at a whole raft of information about what’s going on and where risks may be lurking.” He noted consumer surveys play a useful role, so policymakers know what average citizens think about the economy.

“Beyond the economic data and surveys, financial market indicators are a critical source of up-to-the minute information on how investors view the economy,” he added. “In addition, stock prices and interest rates affect the spending decisions of households and businesses, and the value of the dollar affects demand for exports and imports, so these are important factors shaping the economy’s trajectory.”

International finance, banking conditions and discussions with the public at “Board and Advisory Group meetings, community and business leader forums” provide “immense value” and information.

Currently, markets have been volatile, in part, he said, because investors are concerned about growth, with surveys of households and businesses confirming there’s less confidence in the economy going forward.

“But let me be clear: a softer economic outlook doesn’t mean we should prepare for doom and gloom,” Williams said. “On the contrary, it’s likely we’ll see GDP growth somewhere between 2 and 2 1⁄2 percent this year. That’s a step down from 2018, but still consistent with a healthy, growing economy.”

While he noted Fed balance sheet reduction unti now “plan has worked very well,” he addd, “But it is important to stress that if circumstances change, I will reassess our choices regarding monetary policy, including the path of balance sheet normalization.”

Gary Siegel

Gary Siegel

Gary Siegel has been at The Bond Buyer since 1989, currently covering economic indicators and the Federal Reserve system.

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