San Francisco Fed president John Williams said he expects “gradual rate increases” over the next couple of years, with one possibly as early as December, and Dallas Fed president Robert Kaplan said he’s keeping an open mind toward an increase that month. Kansas City president Esther George, a consistent inflation hawk, said she favours tightening in “small doses” and the committee should take it on a meeting-by-meeting basis.
Kaplan said he’s closely watching recent low inflation readings, while George cautioned against taking too much of a signal from it.
The trio of Fed speakers commented on the heels of an important monetary-policy decision. The US central bank announced plans earlier last week to begin slowly shrinking its $4.5tn balance sheet in October and published forecasts showing that officials still expect to raise interest rates for a third time in 2017, with three more quarter-point hikes pencilled in next year.
“Although I do expect us to need to raise rates gradually over the next couple of years, it’s not like we need to raise rates a lot over the next couple of years,” said Williams, who doesn’t vote on policy this year. He added that the pace “will depend on how the economy progresses.”
Williams, speaking to reporters in Zurich, said that in the event the US economy underperforms significantly, the Fed’s first move “would be to cut interest rates and hopefully articulate clearly our views on why we’re cutting interest rates and how long we expect to keep them low.”
Fed officials are counting on steady growth and low unemployment to raise inflation closer to their goal, which would support their policy of gradual tightening through interest-rate increases and a reversal of quantitative easing.
