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Fed’s Williams : 2019 Rate Cuts Positioned Economy For Growth, Strong Labor Market

Federal Reserve Bank of New York President John Williams said Thursday the central bank’s rate cuts last year put the economy on a path to continue its expansion, and he said what happens next with interest-rate policy depends on what happens with the data.

Three rate cuts last year “positioned us well to keep the economy growing above trend, GDP growth was about 2 1/4 % last year, I think it’s going to be about the same this year based on what we have, and that’s going to generate continued strong labor markets and inflation around 2%,” Mr. Williams said in an appearance before a bankers’ group in New York.

Mr. Williams said “the baseline outlook I laid out is pretty darn good” but there are uncertainties, including from overseas growth issues and what is happening with the novel coronavirus, which causes the illness known as Covid-19, in China.

In that environment, “we just have to go back to our data dependence: Adjust or make plans, adjust the plans as the information is coming in. There is a lot of risk management to this,” Mr. Williams said.

Mr. Williams’s comments were his first since the Fed’s late January rate-setting Federal Open Market Committee meeting, and this week’s appearance before Congress by central bank leader Jerome Powell. The Fed chairman told Congress he expects continued growth and a healthy job market, while once again affirming the central bank’s consensus outlook that after three rate cuts last year, monetary policy will likely hold steady for now.

Mr. Williams, who also serves as vice chairman of the FOMC, has largely echoed the views of Mr. Powell in recent comments, and was a supporter of last year’s rate cuts.

Over recent days, Fed officials have novel coronavirus situation in China as a factor adding uncertainty to the outlook. Some regional Fed officials have said a bad situation on that front, should it arise, could open the door to lowering rates to help keep the U.S. economy moving forward.

In his remarks, Mr. Williams also commented on the Fed’s ongoing effort to calm money market volatility that initially flared in September. The Fed restored order by providing massive amounts of temporary liquidity to banks, which it has slowly been winding down this year. It hopes to end temporary offerings in April as it buys Treasury bills to bolster underlying banking sector reserve levels.

There are enduring questions whether September’s stress was related to temporary factors or whether it was a sign of structural problems in short-term interest-rate markets.

Last week, the Fed’s top bank regulator, Randal Quarles, laid out a plan that would reinvigorate the Fed’s emergency lending discount window as a tool to help short-term stress, but there is uncertainty around that plan. Some also see regulatory problems, which could be slower to fix, as a factor adding friction to money markets.

Mr. Williams said efforts to restore calm in money markets have been effective. “Things are going very well” and the Fed has the control it wants over the federal-funds rate, the focus on monetary policy.
Source: Dow Jones

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