Federal Reserve Bank of San Francisco President John Williams played down a “low” reading on second-quarter U.S. growth and said the economy could still warrant as many as two interest-rate increases this year — or none.
“There’s definitely a data stream that could come through in the next couple of months that I think would be supportive of two rate increases,” Williams told reporters Friday after speaking in Cambridge, Massachusetts. “There’s data that we could get that wouldn’t be supportive of that — it could be one, maybe, or none. Time will tell.”
Williams was the first Fed official to speak publicly since policy makers held interest rates steady on Wednesday for the fifth straight time. The Fed was slightly more upbeat about the U.S. economy in a statement released after its two-day meeting, taking a step toward an increase later this year without signaling how soon a move might come.
Chair Janet Yellen and her colleagues have been watching for evidence of how headwinds from abroad, including fallout over Britain’s decision to leave the European Union, will affect U.S. hiring and progress in lifting inflation toward their goal of 2 percent.
Click here for a quick overview of the Fed’s liftoff and rate path.
Data released earlier on Friday by the U.S. Commerce Department showed the economy expanded less than forecast in the second quarter, while the Fed’s preferred gauge of price pressures excluding food and energy prices rose 1.7 percent annualized.
“The GDP number for the second quarter was low,” said Williams, who isn’t a voting member of the policy-setting Federal Open Market Committee this year. “Final sales actually looked pretty good,” though, and “a lot of the second-quarter weakness, part of it was really inventory swings.” He also said that the inflation data “was more or less what I had been expecting,” while the effects on the U.S. economy from the Brexit vote appeared to be “very modest.”
The U.S. central bank has been on hold since it raised its target for the federal funds rates by a quarter-point in December to 0.25 percent to 0.5 percent, ending seven years of near-zero rates. Its most recent forecasts, released in June, showed that the median estimate of policy makers was for two more quarter-point rate increases this year, though six of the 17 officials submitting projections saw only one move.
“It makes sense to continue on the process of the gradual removal of accommodation — my personal view is it makes sense, assuming the data will support that, to raise rates again this year, but it is data-dependent,” said Williams. “We’ll get a couple more employment reports, more data on inflation before our next meeting.”
The FOMC next meets Sept. 20-21. Yellen will also have an opportunity to discuss her sense of the economy’s progress when she speaks on Aug. 26 at the Kansas City Fed’s annual policy symposium in Jackson Hole, Wyoming.