Fed’s ability to delay rate hike now ‘more limited’: Williams

By Jonathan Spicer

NEW YORK (Reuters) – The Federal Reserve’s ability to delay its initial interest rate hike to head off economic shocks is now “more limited” than its ability to quickly tighten monetary policy in response to positive surprises, a top Fed policymaker said on Tuesday.

San Francisco Fed President John Williams, addressing economists in New York, added that he is now “reasonably confident” inflation will rise to the U.S. central bank’s 2-percent target over the medium term, and that the labor market would continue to improve.

Those are two markers the Fed has set for raising interest rates from near zero, where they have been for 6-1/2 years. “My own personal view is on the baseline forecasts … it satisfies these conditions for me,” he said, adding he wants to see more economic data to confirm his forecasts.

He would not commit to a preferred time frame for hiking rates.

Williams, a centrist among Fed policymakers, stressed that policy changes would be data dependent and that there would be unexpected shocks to the economy.

“If shocks are positive – if the economy really speeds up or inflation picks back up to 2 percent faster – that’s easy, we’ll raise rates a little faster,” he said.

“It’s the downside shocks – say Europe or China deteriorates much further or even in the U.S. we see further signs of slowdown… – the ability to adjust monetary policy, which we do have, we have the ability to delay liftoff or move more gradually, is more limited than it is on the upside,” Williams said.

(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)