Fed's Williams says rates are 'in the right place' but policy is not set in stone

  • New York Fed President John Williams said he is content with the current position of monetary policy and interest rates.
  • He also said inflation appears to be drifting up to the Fed's 2% longer-term goal.
  • Williams expects the economy to continue growing.

New York Fed President John Williams said he is content with the current position of monetary policy and interest rates but said the central bank should be prepared to act aggressively to anticipate negative shocks to the economy.

In a speech Tuesday, Williams also said he considers the U.S. economy to be "in a very good place" and inflation to be drifting up to the Fed's 2% longer-term goal.

"I think we've gotten the adjustments that we need at least right now. Monetary policy is well-positioned given the recent actions," he said at the Securities Industry and Financial Markets Association's annual meeting. "My outlook is one for continued growth. I think we have monetary policy in the right place. Our key thing is we're not linked in to any specific decisions" at future meetings.

Federal Reserve officials in October approved the third quarter-point rate cut this year. But in doing so, they also indicated that they likely will be on hold for a period as they evaluate incoming data. The Fed's benchmark funds rate is now targeted in a range between 1.5%-1.75%.

While endorsing that position, Williams also veered back into a discussion that generated some controversy back in July, when he said research has shown that it's better to be aggressive in cutting rates before a downturn hits rather than waiting for one to arrive. He said he does not endorse the concept of "keeping your powder dry" because of the lags between rate cuts and their impact on economic conditions.

When he made the remarks initially, they prompted a market reaction that eventually led to Williams clarifying his remarks to say that he was speaking theoretically rather than commenting on where he thought current policy should go.

"Given these lags in monetary policy, you really need to be preemptive," he said. "You need to be managing risk in anticipation of where a shock may hit and be prepared to adjust course if need be."

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