The Federal Reserve probably needs to keep U.S. interest rates lower for longer given headwinds from weak global economic growth, a stronger dollar and an unexpectedly sustained drop in oil prices, a top Fed official suggested on Friday.
San Francisco Federal Reserve Bank President John Williams told reporters he now sees slightly slower growth, slightly higher unemployment, and about a tenth of a percent lower inflation this year than he had expected in December, when the Fed raised rates for the first time in nearly a decade.
At the time, officials at the Fed, the U.S. central bank, had as a group expected about four further rate hikes this year, and Williams had said that was in line with his own expectation.
That view appears to have changed, after investor worries about a global slowdown and weakness in China sent equities and oil prices plunging through most of January. Meanwhile the dollar has strengthened, pushing down on U.S. inflation, which is running well below the Fed’s 2-percent target.
“Standard monetary policy strategy says a little less inflation, maybe a little less growth … argue for just a smidgen slower process of normalizing rates,” Williams said.
“We got a little stronger dollar, some mixed data on the economy, some weakness in (fourth-quarter U.S. GDP growth), all of those coming together kind of tell me that we probably need a little bit more monetary accommodation this year than I was thinking in the middle of December.”
Earlier this week Williams was in Washington, where he and other Fed policymakers decided to leave benchmark rates unchanged and to acknowledge that they were closely watching global financial markets.