UPDATE: 1-Fed’s Williams suggests that rates could rise beyond what the central bank has priced in

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(Also, Williams comments, background)

By Michael S. Derby

NEW YORK – December 16, 2016 (Reuters) – John Williams, the President of New York Federal Reserve said Friday that the U.S. central banking could raise interest rates more than what it expects next year. Williams also stated that he does not believe the economy will fall into recession. Fed policymakers are continuing to take steps to curb unacceptably high levels of inflation.

Williams stated that “we’re going to need to do what’s needed” to bring inflation back to the Fed’s 2% target in an interview with Bloomberg Television. He stated that monetary policy needs to be more restrictive and that the next-year’s peak federal funds rate, which Fed policymakers predicted at 5.1%, could be higher than what they have written down.

Williams is vice-chair of the Federal Open Market Committee rate-setting Federal Open Market Committee. He noted that “inflation had been stubbornly high… and we have seen the economy remain very resilient for higher interest rates.”

Williams, however, said that Williams was not happy with Wall Street forecasts suggesting the Fed should raise its federal funds rate target to 6% or even 7%.

Williams was the Fed’s initial official to weigh in on the day following the

U.S. central banks

The Fed increased its overnight benchmark rate by half a point Wednesday to 4.25%-4.50%, as expected. The Fed also updated its estimate of how much it will need raise rates to lower inflation. It predicted weaker economic growth, higher unemployment.

Jerome Powell, Fed Chair, acknowledged in a news conference that the central bank’s actions will pose challenges to the economy. He also said, “I wish there was a painless way to restore price stability.” This is the best that we can do.

Williams indicated that he does see no downturn in the economy, noting that the Fed’s current outlook doesn’t indicate that “I don’t consider this a recession.” There is no recession at the moment.

New York Fed chief said inflation data recently has been more positive thanks to improving supply chain conditions, but that high service sector inflation still remains a problem and an area for Fed action. He said that although wage gains are substantial, they are not enough to drive up overall price pressures in the 1970s.

Williams denied that the Fed is now too slow to raise rates to lower the inflation rate, which has been at its highest level in 40 years. However, Williams maintained that the central bank does not believe it has lost credibility with the public and markets.

Williams stated, “We are absolutely committed to getting inflation back at our 2% goal and we’re acting that way.” Williams also added, “I don’t believe we have lost the credibility” of being seen to be resolute inflation fighters.

Williams said that Williams believes that the Fed’s views of the future of the economy are not in complete alignment. (Reporting by Michael S. Derby, Editing by Paul Simao

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