A key Fed official stays the course on US rate hikes amid growing doubts

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The Federal Reserve is pushing ahead with gradual rate-hike plans next month as it marches toward a more normal policy stance that would keep the economy expanding, one of its most influential members said on Monday in the face of growing doubts in financial markets.

New York Fed President John Williams, a close ally of Fed Chair Jerome Powell and a permanent voter on monetary policy, said repeatedly the US economy and job market is “strong,” prompting employers to hire workers they otherwise would not.

His steady-as-she-goes comments suggest a hot domestic economy is in focus for the US central bank's core decision-makers, even while there are signs of a slowdown overseas. Irrespective, futures traders on Monday further trimmed bets of another interest-rate rise at the Fed's December 18-19 policy meeting.

San Francisco Federal Reserve President John Williams at the Federal Reserve Bank of San Francisco, California, US, January 19, 2018. /Reuters Photo

“What we're going to do over the next FOMC monetary policy meeting, we're going to do what we've been doing as best we can – we're going to find a... gradual path of the monetary policy back to a more normal level of interest rates,” said Williams of the Federal Open Market Committee meeting.

“Rates are still very low. We've raised them but they are still at a very low level,” he added at a New York City Hispanic Chamber of Commerce event in the Bronx. “We want to keep this expansion going as long as possible.”

In the face of 3.7 percent unemployment – the lowest since the 1960s – and economic growth running well above potential this year, the Fed has settled into a quarterly rate-hike cycle. Over the last couple of months, a rate hike in December was seen as all but a sure thing both in and outside of the Fed.

But recent data have suggested growth is slowing in China, Germany and elsewhere as rising US trade tariffs begin to pinch the global economy. This prompted some investors to question how long the Fed can continue tightening its policy. The doubts have left the probability of a rate hike in December at only 65 percent, according to CME Group's FedWatch program.

Traders have priced in about a 35 percent likelihood of two rate hikes next year, down from 57 percent a week ago. That compares to Fed policymakers' forecasts from September that pointed to three hikes in 2019.

While a couple of central bankers expressed some caution last week, most, including Powell and now Williams, paved the way to more policy tightening as planned.

“This is an economy that has lots of unmet needs in the healthcare and education sectors,” Williams said at the Bronx Museum of the Arts after visiting a nearby center that trains people for jobs in technology. “It is not starved of jobs,” he said of the labor market.

“The economy goes up and down, that's just a way of life,” he added. “Right now it is good.”

Source(s): Reuters