January 20, 2017 / 6:41 PM / 3 years ago

Fed's Williams says need to raise rates before economy overshoots

San Francisco Federal Reserve President John Williams speaks to Reuters in San Francisco, California, U.S. September 27, 2016. REUTERS/Stephen Lam

SAN FRANCISCO (Reuters) - San Francisco Federal Reserve Bank President John Williams on Friday repeated his view that the U.S. central bank needs to reduce monetary stimulus before the economy overshoots the Fed’s employment and inflation goals and the Fed has to “slam on the brakes.”

An aging workforce and low productivity growth will keep the United States from growing faster than about 2 percent annually on a sustainable basis, Williams said at the Bay Area Economic Institute’s annual forecast conference.

Donald Trump, sworn in as the 45th U.S. president just hours earlier, has promised his economic policies will boost growth to 4 percent.

It was unclear how that ambition will square with the Fed’s determination, as articulated by Fed Chair Janet Yellen earlier this week, to raise rates gradually in order to prevent the economy from overheating.

Williams, who does not vote on Fed policy this year, did not directly address the disconnect, but said the Fed does not want to see the unemployment rate, at 4.7 percent, falling lower and lower, and inflation, now at about 1.75 percent, to rise higher and higher.

Instead, he said, the Fed’s goal is stabilize both at near current levels, and to do so, it needs to raise rates further.

Reporting by Ann Saphir; Editing by Chizu Nomiyama

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