Fed’s Williams sees healthy economy, gradual rate hikes

HONOLULU (Reuters) – With a “healthy” U.S. economy helped along by strong financial conditions, global growth and the Trump administration’s tax cuts, the U.S. Federal Reserve should stick to its plan for gradual interest-rate increases, a Fed policymaker said Wednesday.

In prepared remarks that made no reference to recent financial market turmoil or the surprisingly strong wage growth in January that has helped push long-term borrowing costs higher, San Francisco Federal Reserve Bank President John Williams signaled he is sticking to his view that the Fed should raise rates about three times this year.

“I don’t see signs of an economy going into overdrive or a bubble about to burst, so I have not adjusted my views of appropriate monetary policy,” said Williams, who votes this year on Fed policy and is said to be under consideration for the position of vice chair under incoming Fed Chair Jerome Powell.

A stock meltdown that wiped out $4 trillion in market value worldwide on Monday shook some traders’ confidence in the Fed’s rate-hike path, even as a report Friday that hourly wages surged 2.9 percent and other strong economic data fed investor expectations for faster inflation.

Williams’ remarks reflect a common view at the U.S. central bank – that policymakers ought to look past market turbulence as they make rate-setting decisions.

“Policymaking is, by its very nature, a long game,” he said, adding that he and his colleagues are well aware that any “knee-jerk reaction would have far-reaching consequences.

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