May 22, 2019 / 2:32 PM / 8 months ago

Fed's Williams says U.S. rates in the right place, inflation pressure nonexistent

NEW YORK (Reuters) - U.S. interest rates are in the right place given a strong economy and “essentially nonexistent” inflation pressures, a top Federal Reserve policymaker said on Wednesday.

FILE PHOTO: John C. Williams, president and CEO of the Federal Reserve Bank of New York speaks to the Economic Club of New York in the Manhattan borough of New York, U.S., March 6, 2019. REUTERS/Lucas Jackson/File Photo

New York Fed President John Williams said at a press briefing that there is not currently a strong argument for changing rates, including as a response to low inflation readings that may due to temporary factors.

“We need to make sure that we continue with a strong expansion, the strong economy, in a way that leads to inflation moving back to our symmetric 2% goal,” Williams said in response to a question on whether a rate cut could help support inflation.

“If that requires an adjustment of monetary policy down the road at some point then, based on all that analysis and evaluation, if that’s appropriate then I think we should do that. I don’t think we’re at that point today, and I don’t think we’ll be at that point in the very near future.”

The Fed’s preferred inflation gauge, the core personal consumption expenditures (PCE) price index, rose 1.6% on a year-on-year basis in March, the smallest rise in 14 months.

The gap in yield between short and long-term U.S. government bonds narrowed after Williams’ remarks, with the spread between 2 and 10-year Treasuries falling to under 16 basis points, from around 18 basis points earlier in the morning.

In recent weeks markets have been increasingly positioning for the possibility of the Fed’s next move being a rate cut. Long-term yields are more responsive to inflation than shorter-term bonds, which are heavily influenced by expectations of Fed policy.

Williams, who is vice-chairman and a permanent voting member of the Fed’s rate-setting committee, also said some risks to global growth have receded and domestic drivers of the U.S. economy are strong, likely putting growth above 2% and its long-run potential this year.

Rates, meanwhile, of currently between 2.25-2.50% are right about at a “neutral” level that neither eases the economy nor restricts it, and he sees limited argument for changing those borrowing costs.

The Fed will release the minutes of its latest monetary policy meeting later on Wednesday.

Reporting by Trevor Hunnicutt; Additional reporting by Gertrude Chavez-Dreyfuss; Editing by Chizu Nomiyama

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