Federal Reserve Bank of San Francisco President John Williams stated on Monday that the U.S. Federal Reserve must push through with more interest rate hikes this year in order to avoid overheating in the economy of the country causing problems such as inflation.
The Fed last raised interest rates just a few weeks ago marking the hike as the second this year. Economists then predicted one more interest rate later this year and three by 2018.
According to Williams, the inflation rate is expected to rise at a rate similar to that of the central bank’s target rate of 2% next year as unemployment rates decline. He also added that raising interest rates gradually in order to restore monetary policy to normal will help the economy grow at a rate which can be sustained for a longer time period.
The Federal Reserve San Francisco president also hinted that he might take over as Fed Chair after Janet Yellen’s term ends in a couple of months. Williams is one of the few Fed officials who call for more rate hikes as most have argued for a temporary halt in the campaign for rate hikes.
On the other hand, current Fed chair Janet Yellen has also spoken on how the Federal Reserve remains on track for more rate hikes and has downplayed the recent decline in price data. She has also stated that the Fed should wait for more signs that the inflation rate is, without a doubt, rising higher.
Last month, US unemployment rate slumped below William’s sustainable rate of 4.75% at 4.3%. Williams predicted that it would decline even further below 4% by next year.
According to Williams prior to a dated speech in Sydney on Monday, three more rate hikes this year and around three or four next year would sustain the economy as long as the economic growth pushes through as expected by the Federal Reserve.
Other factors that are believed by Williams to have pulled the inflation rate down include the decline in mobile-phone services prices that supported the decrease of the Fed’s inflation gauge from 1.9% in March to 1.7% in May.
He also stated that a slight slowdown in the U.S. inflation should not prevent a few more interest rate hikes this year. "If we delay too long, the economy will eventually overheat, causing inflation or some other problem. At some point, that would put us in the position of having to quickly reverse course to slow the economy," he stated
On the other hand, the Fed has announced that it plans to cut around $4.5 trillion from its balance sheet this year.
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