Fed's Williams: An 'open question' whether Fed will need to hike again

John Williams, CEO of the Federal Reserve Bank of New York, speaks at an event in New York

By Michael S. Derby

NEW YORK (Reuters) -Federal Reserve Bank of New York President John Williams on Thursday kept his options open over future U.S. interest rate policy, acknowledging falling inflation and a better balanced economy, which suggests there is no urgency for a rate rise later this month.

When it comes to the current setting of monetary policy, "it's pretty clear we're restrictive" but it's "still an open question as we go forward" whether policy must present an even greater headwind to economic activity to bring inflation back down to 2%, the Fed official said.

Williams declined to say whether the Fed should raise rates again. "Things are moving in the right direction and we've got policy in a good place, but we're going to need to continue to be data dependent, watch developments and assess what we need to do" to achieve the central bank's goals, the official said.

Williams made his comments at an event held by Bloomberg. He is among the last central bank officials scheduled to speak before the central bank goes into its customary quiet period ahead of a rate-setting policy meeting scheduled for Sept. 19-20.

At that gathering, the Fed is widely expected to refrain from raising the current federal funds target rate range set now at between 5.25% and 5.50%. The Fed raised rates at its late July FOMC gathering, but cooling inflation data and some nascent sighs of slowing in the job market have given officials time to take in more data to determine whether or not they need further rate hikes to help guide inflation back to the Fed’s 2% target.

Williams spoke a day after the release of the Fed’s latest Beige Book report, an anecdotal survey that found that during July and August economic activity was modest amid cooling price pressures and budding challenges faced on the household financial front.

Williams cautioned that while many parts of the economy appear to be on the mend from the impact of the coronavirus pandemic, the Fed is currently in a position where it's challenging to provide guidance beyond reiterating its commitment to get inflation back to target.

"As the situation changes and developments are different than we expected, we're going to adapt and change in a way that is appropriate," Williams said.

Williams also said he expects the current unemployment rate of 3.8% to rise to the low 4% range, but he noted that rise is likely to come in an economy where inflation hasn't been following the "traditional" play book, and he doesn't see the expected increase in joblessness as akin to what's normally seen in recessions.

Williams also noted the financial sector appears to have downgraded its negative outlook, saying "all that talk about we're about to have a recession has vanished."

(Reporting by Michael S. Derby; Editing by Leslie Adler and Diane Craft)