Three interest-rate increases this year is a “reasonable” assessment of what the U.S. central bank should do at a time when unemployment has declined and inflation is slowly moving up, says Federal Reserve Bank of San Francisco President John Williams.
“The central tendency of the views of my colleagues—around three rate hikes—that’s, I think, a very reasonable view,” Williams told CNBC television in an interview today.
As Bloomberg reports, officials surprised markets last month when their quarterly median estimate for the appropriate rate path in 2017 shifted up to three quarter-point hikes from two projected in September. Minutes of their Dec. 13-14 policy meeting showed officials judged upside risks to growth forecasts had increased amid a potential boost from fiscal policy.
President-elect Donald Trump has pledged tax cuts and infrastructure spending after taking the White House on Jan. 20, which could help to spur faster inflation and warrant a steeper pace of hikes than would otherwise be needed to keep prices gains near the Fed’s 2% goal.
“All of these issues around fiscal policy and other policy are things that we study very closely and analyze,” Williams said. “From my perspective, we don’t know what’s going to happen.” It can take months for Congress to agree on new policy proposals before they’re signed into law.
Williams did say that “relative to a few months ago, I think the distribution of likely outcomes in terms of fiscal policy is probably more stimulus than I was thinking a few months ago, and I built that into my own view” at the December meeting. About half of the 17 Fed officials built fiscal policy assumptions into their forecasts for the December meeting, the minutes showed.
