A top Federal Reserve policymaker said on Monday that the pace of interest-rate hikes after an initial liftoff should be gradual to preserve flexibility and to help a U.S. economy that still may need stimulus.
“My own view is that the pace of tightening would be actually pretty gradual over the next few years once we start liftoff,” said John Williams, president of the San Francisco Federal Reserve Bank. He made his remarks in Boston on the final day of the annual American Economic Association conference.
He said a gradual pace would reflect the fact that, “This is a U.S. economy, (that) although doing a lot better, still needs a monetary accommodation to have above-trend growth, which is what we need for the next few years.”
He added that a lesson learned from the mid-2000s is that sending signals that interest rate increases will happen on a measured pace could send the wrong message.
“I think the lesson from the mid-2000s was that language very quickly became seen as locking us into 25-basis-point increases at every meeting,” Williams said. “In fact, you don’t want to be locked in that way. You want to have the flexibility to tighten policy faster or actually take these pauses in between as appropriate.”
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