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S.F. Fed pres. optimistic that economy can sustain rate hike
April 13, 2015
SAN FRANCISCO (4/14/15)--Don't count San Francisco Fed President John Williams among those concerned that the U.S. economy won't be able to sustain an interest-rate increase.
Williams in an interview with Reuters said that, as the job market continues to strengthen, the chances of the Federal Reserve dropping interest rates back to near zero after the initial increase continues to slim.
The Federal Open Market Committee (FOMC) has maintained near-zero interest rates to help propel the economy through the recovery, and Williams said the FOMC can now focus on drawing up the appropriate rate path and worry less about the aftershocks of the initial rate increases (Reuters April 13).
"As we go through time, that probability of saying 'Well, the shocks are going to push us back,' seems to be less, seems to be decreasing," Williams told Reuters. Williams is one of 10 voting members on the FOMC.
"More importantly, we are really thinking about a path. We are talking about moving interest rates from zero to a normal level over several years," Williams said, adding, "So even if the economy got some bad shocks, really you are probably just talking about flattening that path out a bit, or maybe raising rates more slowly."
In fact, according to Williams, many members of the FOMC are more concerned about waiting too long to raise interest rates.
If the Fed stalls on the rate hike and the economy surges, it may have to raise rates in a hurry, which could end up being disruptive.
"A little earlier and more gradual versus later and more aggressive," Williams said. "Those are the options we have."