Fed bank president says uncertainty alone should not stop rate increase

Federal Reserve Bank of San Francisco President John Williams.
Federal Reserve Bank of San Francisco President John Williams.PHOTO: MONETARY AUTHORITY OF SINGAPORE

WASHINGTON (BLOOMBERG) - Federal Reserve Bank of San Francisco President John Williams said risks to the economy from developments abroad haven't worsened and that domestic conditions remain positive, while repeating his call to raise interest rates this year.

"On the global side, I'm not seeing any obvious signs that those risks that were on my mind and the minds of others, I don't see signs that those have gotten worse," Mr Williams, a voting member on the Fed's policy committee this year, said in Salt Lake City on Thursday (Oct 1). He was answering questions from the audience after delivering a speech.

"There's always going to be risks, there's always going to be uncertainties," he said. Even so, "we're going to have to take actions that we think are the appropriate ones given our goals."

The Fed has kept its main policy interest rate near-zero since 2008. The decision by policy makers to delay liftoff at their Sept 16-17 meeting has been described as a close call by members of the committee including Mr Williams, chair Janet Yellen, Atlanta Fed President Dennis Lockhart.

"When you have a close decision like that, it doesn't take a lot of information to tip the balance," Mr Williams said in a question session with reporters, explaining that a rate increase is on-the-table at the Fed's next meeting in October. Even if rates increase soon, Mr Williams said he expects the unemployment rate to fall below 5 per cent this year.

The Fed's deliberations are taking place as the US labour market improves and inflation remains stagnant. The jobless rate fell to 5.1 per cent in August, and a new report that will be released on Friday is expected to show that it held steady last month, based on the median forecast in a Bloomberg survey of economists. Meanwhile, the Fed's preferred measure of inflation stood at just 0.3 per cent in August, and hasn't touched the central bank's 2 per cent goal since 2012.

Mr Williams said in his speech that as the Bank of Japan, European Central Bank and People's Bank of China use stimulus, it's helping to boost the US dollar, which affects the prices of imports and exports and feeds through to inflation.

"We're just hit more by events abroad, and those are part of the economic environment that we are in today," he said, when asked if the international integration of financial and economic systems had affected the effectiveness of monetary policy.