A senior Federal Reserve official said the U.S. economy was not yet ready for the central bank to begin pulling back its strong monetary support, even as the outlook had become more rosy.
The comments of John Williams, president of the Federal Reserve Bank of New York, were conveyed Monday amid high sensitivity in financial markets to Fed policy. Economic forecasts from central bank officials last week indicated that they expect to raise interest rates in 2023, a year earlier than indicated earlier.
Williams said the economy will “improve all the time,” in some of its most bullish observations since the pandemic began. But he insisted the Fed will follow the terms of its monetary policy framework, introduced last August, which sets a high bar for a tightening policy.
“It’s clear that the economy is improving at a rapid pace, and the medium-term outlook is very good.
“But the data and conditions have not advanced far enough for the Federal Open Market Committee to shift its strong monetary policy stance to economic recovery.”
The comments seem more cautious about the prospect of a rapid policy change compared to those of other Fed regional presidents since the last FOMC meeting.
Speaking to CNBC on Friday, James Bullard, the president of the St. Louis Fed, made it sparkle sell-off in U.S. stocks when he suggested the central bank might be ready to raise interest rates as early as next year.
Williams said interest rates will not rise until full employment has been reached and inflation has risen to 2 percent and has been “on track” to moderately exceed that target for some time.
He also said that any decrease in monthly purchases of $ 120 billion in assets from the Fed would not be made until “further substantial progress” has been made on these fronts.
“Thinking about adapting its position in the future, the FOMC has defined the conditions and measures that will inform its decision,” he said.
On Monday, at an event hosted by the Official Forum of Monetary and Financial Institutions, a think-tank, Bullard reiterated the need for the Fed to begin considering reducing its bond purchases in the face of higher inflation.
Robert Kaplan, president of the Dallas Fed, set a similar tone at the same event.
“It will be healthier as we move forward in the survival of the pandemic and in the realization of our goals to begin adapting these acquisitions – Treasuries and mortgage-backed securities – sooner rather than later,” Kaplan said.