In World Economy News 11/11/2016
A day after Republican Donald Trump was elected as the next U.S. president, San Francisco Federal Reserve Bank President John Williams said that the U.S. central bank is nerdy, geeky, but above all apolitical, and will remain so.
“Having that independence is very important,” Williams said, adding that criticism of the Fed is part of democracy and is to be expected. “We are focused on the economy, focused on achieving our goals; it is not a partisan activity.”
During his campaign Trump repeatedly accused the Fed of keeping rates low for political reasons, and said he would replace Fed Chair Janet Yellen, who ran the San Francisco Fed before Williams, once her term ends in 2018.
Speaking at the University of San Francisco, Williams said the U.S. economy is close to maximum employment and inflation is poised to rise back to the Fed’s 2-percent target, and that therefore it is time for the central bank to increase rates gradually.
“It makes sense, I would say, to ease off on the gas a bit,” Williams said. “We do want to run a hot economy for a while (but) we don’t want it to be too hot for too long.”
Rate increases have been much slower than the Fed expected last year, when most policymakers thought they would raise borrowing costs four times in 2016.
Williams said the Fed did not raise rates as fast as expected because most policymakers over the course of the year changed their estimate of the neutral level of interest rates, and now believe that level is much lower because of factors like an aging population and slow productivity growth.
The neutral rate is the level of borrowing costs at which an economy can hum along at trend with full employment and low inflation.
“We are not making promises to raise interest rates,” he said, adding the Fed’s decisions are driven by economic data.
The Fed is widely expected to raise one time this year, at next month’s policy meeting, a move that Williams supports.
Source: Reuters (Reporting by Ann Saphir; Editing by Sandra Maler & Shri Navaratnam)
