Fed’s Williams Sees ‘Neutral’ Interest Rate Lower, Longer
$DIA, $SPY, $QQQ, $VXX
- Stocks dip following a the strong start to the month
- Treasury’s benchmark 10-yr yield above 3.00%
Tuesday, Mr. Williams, who will take the helm of the New York Fed on 18 June, said that inflation is nearing the central bank’s 2% target after a temporary slowdown last year and noted that unemployment is at its lowest since Y 2000, shoring up his confidence in the outlook.Federal Reserve Bank of San Francisco President John Williams said he’s “very positive” about the economic outlook both in the U.S. and abroad and reiterated that he views 3-4 interest-rate increases this year as appropriate.
Investors expect the Fed to raise borrowing costs for a second time this year when they meet in June and see the likelihood of three or four moves for the year as a whole as roughly balanced.
Still, Mr. Williams cautioned that he still sees the so-called neutral rate remaining lower in the longer run, limiting how high the Fed will be able to raise interest rates over the course of its tightening cycle before restraining growth.
Mr. Williams is among the foremost researchers focused on the longer-run outlook for rates.
“With a new normal for short-term rates of around 2.5%, interest rates are likely to remain low relative to historical experience,” he said in the text of remarks to the Economic Club of Minnesota in Minneapolis.
Mr. Williams sees the neutral rate, meaning the real rate expected to prevail when the economy is at full strength, around 0.5% today, or around 2.5% when accounting for inflation around the Fed’s 2% goal.
That is low by historical standards: a “normal interest rate” was roughly 2 percentage points higher 20 years ago.
Tuesday, the major US stock market indexes finished at: DJIA -193.00 at 24706.41, NAS Comp -59.69 at 7351.63, S&P 500 -18.68 at 2711.45
Volume: Trade on the NYSE came in at 801-M/shares exchanged
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