Fed’s Williams: rates need to rise, don’t see recession

Flags fly over the Federal Reserve Headquarters on a windy day in Washington, U.S., May 26, 2017. REUTERS/Kevin Lamarque

June 28 (Reuters) – New York Federal Reserve Bank President John Williams on Tuesday called for further rapid interest-rate hikes to slow the economy and inflation, including a possible second 75-basis point rate hike next month,but said he does not expect a U.S. recession.

By the end of the year, Williams said in an interview on CNBC, interest rates “definitely” need to be between 3% and 3.5%, adding that at this point it looks “perfectly reasonable” for the Fed’s policy rate to get to between 3.5%-4% next year, a level where it will restrict economic growth.

“We need to move expeditiously,” Williams said in an interview on CNBC. “In terms of our next meeting I think 50 (basis points) or 75 is clearly going to be the debate.”

The Fed earlier this month raised rates by three-quarters of a percentage point to a range of 1.5%-1.75% to battle inflation that is at a 40-year high. The higher borrowing costs will slow economic growth to between 1% and 1.5% this year, and the unemployment rate, now 3.6%, will likely rise to above 4% over the next couple of years, he said.

But those higher rates will not cause the economy to crash, he said.

“Recession is not my base case,” Williams said. “I think the economy is strong.”

Reporting by Ann Saphir and Lindsay Dunsmuir
Editing by David Goodman and Chizu Nomiyama

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