U.S. Markets

Fed's Williams wants rate hike this year as wages rise

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 redoubled his call for raising rates soon, telling reporters after a speech here that “this year would be good” for a rate rise that he had wanted to take effect last month.

Waiting too long to raise rates, he said, could end up fueling inflation or bubbles and force the Fed to implement sharp rate hikes that could choke economic growth. Next year, he added, it would “make sense” for the Fed to raise rates a few more times.

But he stopped short of calling for a rate rise next month, at a meeting that takes place just one week before the U.S. presidential election.

With the U.S. economy “essentially at” full employment and inflation “pretty darn close” to the Fed’s 2-percent inflation goal, “it makes sense to get back to a pace of gradual rate increases, preferably sooner rather than later,” Williams told the Federal Home Loan Bank of San Francisco member conference.

By December, he told reporters afterwards, there would be more data to make a decision on rate rises, and with economic data already showing that wages and inflation are rising, there is no fundamental reason policymakers would not be able to come to a consensus then.

“In arguing for a gradual increase in interest rates, I’m not trying to stall the economic expansion,” said Williams, who will next vote on rate policy next year. “It’s just the opposite: My aim is to keep it on a sound footing so that it can be sustained for a long time.”

Williams said he did not disagree with Fed Chair Janet Yellen, who last week suggested that running a “high pressure economy” may be the best way to reverse damage from the financial crisis. Williams told reporters that he had no problem with allowing the economy to run somewhat hot, but is only worried that if unemployment, now at 5 percent, is able to fall as low as 4 percent, it could require the Fed to pivot quickly, causing a recession.

Most Fed officials believe it will be appropriate to raise rates before the end of the year.

The Fed last raised rates in December, and currently targets a range of 0.25 percent to 0.5 percent for the overnight lending rate between banks, its main policy lever.

Reporting by Ann Saphir; Editing by Chizu Nomiyama