San Francisco Federal Reserve President
John Williams said on Friday that low neutral interest rates are a
warning sign of possible changes in the U.S. economy that the central
bank does not fully understand."I
see this as more of a warning, a red flag that there's something going
on here that isn't in the models, that we maybe don't understand as well
as we think, and we should dig down deep deeper and try to figure this
out better," he said during a panel discussion at the Brookings
Institute in Washington.
Williams, who is a voting member of the Fed's policy-setting panel through the end of the year, has said the central bank should begin to raise interest rates soon but thereafter go at a gradual pace.
He
added that the low neutral interest rate had "pretty significant"
implications for monetary policy, and put more focus on fiscal policy as
a response.Williams, who is a voting member of the Fed's policy-setting panel through the end of the year, has said the central bank should begin to raise interest rates soon but thereafter go at a gradual pace.
"If we could come up with better fiscal policy, find a way to have the economy grow faster or have a stronger natural rate of interest, then that takes the pressure off of us to try to come up with other ways to do it, like through a large balance sheet or having a higher inflation target," Williams said. "It also means we don't have to turn to quantitative easing and other policies as much."
On Wednesday, the Fed held interest rates near zero but signaled that a December rate rise remains firmly in play.
Reuters
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