Fed's Williams argues for vaccinating economy when rates are low
By Trevor Hunnicutt NEW YORK (Reuters) - Policymakers need to add stimulus early to deal with too-low inflation when interest rates are near zero and cannot wait for economic disaster to unfold, a Federal Reserve policymaker said on Thursday.
By Trevor Hunnicutt
NEW YORK (Reuters) - Policymakers need to add stimulus early to deal with too-low inflation when interest rates are near zero and cannot wait for economic disaster to unfold, a Federal Reserve policymaker said on Thursday.
In a speech read as a strong argument in favour of quick and aggressive action by the Fed to cut rates when it meets at the end of this month, New York Fed President John Williams said one lesson from his research is that when rates and inflation are low, policymakers cannot afford to keep their "powder dry" and wait for potential economic problems to materialise.
That is especially true with neutral rates that would neither restrict nor accelerate the U.S. economy "around half a percent," he said. When adjusted for inflation, the neutral rate is near the Fed's current policy rate, which is in a range of 2.25-2.50%.
"It's better to take preventative measures than to wait for disaster to unfold," Williams said in a speech at a central banking conference in New York. "When you only have so much stimulus at your disposal, it pays to act quickly to lower rates at the first sign of economic distress."
Short-term bond yields dived on the remarks, with 2-year Treasuries
In recent weeks, Fed policymakers have identified a host of concerns they think could end what is now the longest U.S. economic expansion on record. Chief among the concerns are the U.S.-China trade war, which is denting business confidence, a global manufacturing slowdown and inflation below the Fed's target of 2% a year.
Williams, who is a permanent voting member of the Fed's policy setting committee, sounded particularly concerned about inflation, with the Fed's preferred measure of prices gaining 1.6% a year now.
"People may start to expect it to stay that way, creating a feedback loop, pushing inflation further down over the longer term," he said. "The lower average level of inflation translates into a lower level of interest rates cuts available during a downturn, making it even harder for policymakers to achieve their goals."
Taking quick action to cut rates in the face of "adverse economic conditions" and keeping rates lower for longer, Williams said, "should vaccinate the economy and protect it from the more insidious disease of too-low inflation."
Other Fed policymakers seem less sure. Kansas City Fed President Esther George, for instance, on Wednesday suggested she might be willing to support a cut, but only if looming economic risks materialise.
(Reporting by Trevor Hunnicutt; Editing by Chizu Nomiyama and Leslie Adler)
This story has not been edited by Firstpost staff and is generated by auto-feed.
By Robin Emmott and John Irish | BRUSSELS/PARIS BRUSSELS/PARIS France and Germany will agree to a U.S. plan for NATO to take a bigger role in the fight against Islamic militants at a meeting with President Donald Trump on Thursday, but insist the move is purely symbolic, four senior European diplomats said.The decision to allow the North Atlantic Treaty Organization to join the coalition against Islamic State in Syria and Iraq follows weeks of pressure on the two allies, who are wary of NATO confronting Russia in Syria and of alienating Arab countries who see NATO as pushing a pro-Western agenda."NATO as an institution will join the coalition," said one senior diplomat involved in the discussions. "The question is whether this just a symbolic gesture to the United States
BEIJING Chinese President Xi Jinping on Wednesday called for greater efforts to make the country's navy a world class one, strong in operations on, below and above the surface, as it steps up its ability to project power far from its shores.China's navy has taken an increasingly prominent role in recent months, with a rising star admiral taking command, its first aircraft carrier sailing around self-ruled Taiwan and a new aircraft carrier launched last month.With President Donald Trump promising a US shipbuilding spree and unnerving Beijing with his unpredictable approach on hot button issues including Taiwan and the South and East China Seas, China is pushing to narrow the gap with the U.S. Navy.Inspecting navy headquarters, Xi said the navy should "aim for the top ranks in the world", the Defence Ministry said in a statement about his visit."Building a strong and modern navy is an important mark of a top ranking global military," the ministry paraphrased Xi as saying.