New York Fed President John Williams said on Monday, November 20, 2018, that the Federal Reserve should continue its gradual path toward higher interest rates, arguing that the U.S. economy remains strong enough to support more tightening.
Williams, a close ally of Fed Chair Jerome Powell and a permanent voter on monetary policy, told a New York City Hispanic Chamber of Commerce event in the Bronx that the central bank is still working its way back to a more normal policy stance. He said rates remain low even after earlier increases, and added: “We want to keep this expansion going as long as possible.”
His remarks came as financial markets were becoming less certain that the Fed would raise rates again at its December 18-19 policy meeting. Traders had already trimmed expectations for another move, with CME Group’s FedWatch program putting the probability of a December hike at 65 percent.
The shift in market sentiment followed signs of slowing growth in China, Germany and other economies, alongside concerns that rising U.S. trade tariffs were beginning to weigh on the global outlook. That uncertainty also pushed down expectations for 2019, with traders pricing in about a 35 percent chance of two rate increases next year, compared with 57 percent a week earlier.
Fed policymakers had projected three hikes in 2019 in their September forecasts. Even so, Williams said the U.S. economy and labor market remained in good shape, pointing to 3.7 percent unemployment, the lowest level since the 1960s, and growth running above potential in 2018.
He said the labor market still had room to absorb more workers, especially in sectors such as healthcare and education. “This is an economy that has lots of unmet needs in the healthcare and education sectors,” Williams said after visiting a nearby center that trains people for technology jobs. “It is not starved of jobs,” he said.
Williams also brushed aside fears that the expansion was running out of steam. “The economy goes up and down, that’s just a way of life,” he said. “Right now it is good.”
While a few central bankers had sounded more cautious the previous week, Williams joined Powell in signaling that the Fed was still on track to keep tightening policy gradually.
