San Francisco Federal Reserve Bank President John Williams says the central bank hasn’t “changed fundamentally” its views on when the first interest rate hike will come.
“In the big picture, the policy hasn’t changed,” Williams said in an interview with the Washington Post published online Monday.
“Any kind of standard way of thinking about monetary policy is, with unemployment lower, then down the road interest rates will normalize a little bit faster,” he said. “We’re talking again about 2016. There’s no, to my mind, near-term change for monetary policy.”
Williams was commenting on the market reaction to Chair Janet Yellen’s press conference last week when she mentioned a six month’s lag between the end of tapering and the first rate hike.
“Market perceptions are what they are,” he said. “But I really don’t see anything of what we said as suggesting that we’re going to tighten monetary policy sooner rather than previously.”
Williams, who doesn’t vote on the Federal Open Market Committee this year, tried to calm markets fears of an earlier rate hike saying his expectation is “we would raise rates in the second half, so we’re not talking April.”
He added: “In the big picture, whether it’s at one meeting or the next meeting doesn’t matter nearly as much as getting the general path of policy in the right place.”
Williams is considered a close ally of Yellen’s, having worked with her when she held the position of bank president at the San Francisco Fed.
He said it makes sense that with a lower unemployment rate suggests a little bit higher interest rate in 2016, but added “We’re talking about a relatively small change in terms of the forecast, and I wouldn’t see that as a significant shift.”
Reiterating sentiments he expressed after a speech in Seattle earlier this month, Williams also said any rate increases “are going to be in the context of a shallow glide path, or a gradual process over what looks like several years before we get back to a normal level.”
Williams said in his views, interest rates will be “well below 4%” at the end of 2016, adding “it will take quite a long time before we get to that 4%.”
He also said he disagreed with Minneapolis Fed President’s Narayana Kocherlakota assessment in his dissent that the change from quantitative thresholds to a more qualitative forward guidance undermined the Fed’s credibility.
“In terms of credibility, I do disagree with that point,” he said. “I see our policies as achieving our goals over the next few years.”