Fed Pres Williams: I Am Not At All Concerned About Inflation

San Francisco Federal Reserve Bank President John Williams spoke with FOX Business Network (FBN) about the economy saying, “there’s still quite a bit of slack in the economy.” Williams went on to say, “I think it’s still not time yet to raise interest rates.  I think that’s not going to happen based on my forecast, until sometime probably in the middle of next year.” Williams also spoke about wage growth saying, “we’re seeing some report of some uptick in wage growth relative to that 2 percent norm” and “ I’m not concerned about inflation at all.” When asked about the job numbers Williams said, there is “significant slack in the labor market.”

Fed Pres Williams on when to raise short term interest rates:

“Well, the economy is improving quite a bit.  We’re seeing a lot of job growth, we’re seeing unemployment come down and more importantly, we’re seeing a lot of other indicators of improvement in the labor market and the economy.  So that’s all good news. It’s also we’ve been doing our taper of pulling back on the purchases of asset purchases and that’s gone pretty smoothly and that program will likely come to an end later this year. So this is all good, this is a sign of strength in the recovery.  In terms of raising interest rates, actually tightening monetary policy from where we are now, I think it’s really important to remember, although the economy has improved a lot and we’re on a good track, there’s still quite a bit of slack in the economy.Unemployment is still quite a bit higher than its normal level and inflation is running below our preferred 2 percent target. So I think it’s still not time yet to raise interest rates.  I think that’s not going to happen based on my forecast, until sometime probably in the middle of next year, around that, depending how the economy progresses. This economy is still benefiting from strong support from the Fed and we don’t want to remove that too early.”

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Fed Pres Williams on wage growth:

“Well, so far, you know, wage growth has actually been rather muted.  It’s about a 2 percent gains across the economy.  And one of the advantages of being a Federal Reserve president, me and my colleagues actually talk to business leaders regularly and one of the questions we ask is what are you doing with wages. And we’re seeing some report of some uptick in wage growth relative to that 2 percent norm.  I think this is all a positive thing.  More wage growth means more money in people’s pockets, more consumer spending; that’s going to help the recovery.   I’m not concerned about inflation at all.  You know, for a 2 percent inflation rate for prices we would expect to see wage growth around 3 percent, 3.5 percent.  So, some improvement in wage growth from 2 percent up to 3 percent and 3.5 percent, that’s desirable and consistent with our goals.”

Fed Pres Williams on the path ahead for raising interest rates:

“Well, I think there’s two issues, obviously one is when will we raise interest rates, that will be driven by the economy.  The other point as you’ve mentioned is we really need to be as clear as we can in communicating our strategy.   Right now I think our expectations, my expectations will be raising interest rates very gradually and not trying to upset or disrupt markets in the economy.  We’re going to take this at a nice measured pace. That said we’re also going to try to communicate that our policy actions will depend on economic conditions and, hopefully, my view is we should get away from being so -adding so much certainty about what the Fed is going to do, but emphasize more what our strategy is, and what our basic reaction function is to the economy and just say that our monetary policy stands well to evolve as the economy does.”

Fed Pres Williams on the job numbers:

“Well, we look at a broad set of measures from different sources about the labor market and I think they’re all telling a pretty coherent story of an improving labor market.  I don’t put all of my emphasis on one statistic or another, but all the indicators are saying things are improving.  Again, I’d emphasize we’re still in an economy that the significant slack in the labor market, we’ve got still a ways to go before we’re at full employment.”