Fed's Williams: Risks to U.S. economy still to the downside

WASHINGTON (Reuters) - The U.S. Federal Reserve has interest rates at the appropriate level for the U.S. economy but risks to the economic outlook are still tilted downwards, New York Federal Reserve President John Williams said on Tuesday.

FILE PHOTO: John Williams, Chief Executive Officer of the Federal Reserve Bank of New York, speaks at an event in New York, U.S., November 6, 2019. REUTERS/Carlo Allegri/File Photo

“I think some of these issues, with inflation still below target, we are still seeing some downgrades in the global outlook, I am definitely watching more for some of the downside,” Williams told reporters following an appearance at a capital markets conference in Washington.

Earlier, Williams had echoed his colleagues at the U.S. central bank in describing monetary policy as in the right place with the U.S. economy “right where we would like it to be.”

The Federal Reserve voted 8-2 to cut interest rates by a quarter percentage point at its October meeting to a target range of between 1.50% and 1.75%.

It was the third interest rate cut this year, but the Fed made plain at the time that it would lower rates again only if there is a material deterioration in the U.S. economic outlook.

Earlier this month, Williams also said the U.S. economy is in a good place and reiterated that the central bank’s reduction in borrowing costs this year should mitigate the potential risks of the ongoing U.S.-China trade war and slowing global growth.

On what it would take for the Fed to reconsider its current pause on interest rates, Williams told reporters it would be important for the Fed not to overreact to individual data points but to follow trends.

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“Are these global factors or other things causing the U.S. economy to slow more than expected and slow below trend growth on an ongoing basis? That would be an argument for some more accommodation. Similarly, if inflation were to move in the wrong direction on a sustained basis, that would be an argument to consider more accommodation,” Williams said.

The New York Fed chief also addressed September’s ructions in short-term lending markets and said the central bank and regulators should closely examine how regulations put in place following the 2008 financial crisis may have contributed.

“My only message on this would be there are reasons we have regulations that were put in place after the crisis… That said, there may be ways that there are unintended consequences and inefficiencies,” Williams said.

“We don’t want inefficiencies in terms of how those markets work so those are the things that will be studied carefully,” he noted.

The Fed began purchasing Treasury bills in mid-October to increase the level of reserves in the banking system and minimize volatility after September’s liquidity crunch, which caused borrowing rates in short-term lending markets to spike.

The New York Fed said last week it will purchase $60 billion in short-term Treasury bills through mid-December.

The Fed has one more interest-rate setting before the end of the year, on Dec.10-11 but investors now see the Fed keeping interest rates unchanged until at least mid-2020.

Reporting by Lindsay Dunsmuir; Editing by Chizu Nomiyama