November 21, 2015 / 6:51 PM / 2 years ago

Fed's Williams says central banks need to consider new tools

2 Min Read

BERKELEY, Calif., Nov 21 (Reuters) - The U.S. Federal Reserve and other global central banks need to consider new stimulus tools to deal with what may be permanently lower interest rates worldwide, a top Fed official said on Saturday.

With the so-called natural interest rate in the United States now near zero, and equilibrium rates in other countries around the world also lower than in the past, central banks have less room to stimulate their economies in the face of shocks, San Francisco Fed President John Williams said at a conference at University of California Berkeley's Clausen Center.

Central banks should consider possibly keeping larger balance sheets, or using negative interest rates, to provide stimulus when needed, Williams said.

The natural interest rate is the rate at which an economy can maintain full employment and stable inflation; central banks traditionally lower rates to stimulate their economies, but have less room to do so when the natural rate is low. (Reporting by Ann Saphir; Editing by Alan Crosby)

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