Williams Says Fed `Should Stick to' Plan for Gradual Rate Hikes

(Bloomberg) -- Federal Reserve Bank of San Francisco Fed President John Williams downplayed concerns that the U.S. central bank would overreact to a brightening economic outlook by ramping up the pace of interest-rate increases.

“I have boosted my growth forecasts for this year, but I don't see an economy that's fundamentally shifted gear,” he said in remarks prepared for delivery Friday in San Francisco. Noting that the Fed had outlined a path of gradual rate hikes in 2018, Williams said “my own view is we should stick to that plan.”

Bond yields jumped and stocks tumbled Friday following a stronger-than-expected January U.S. employment report which investors fear may prod the Fed into quickening the pace of policy tightening. Williams, who votes on Fed policy this year, didn't comment on the jobs data in the text of his speech, but said he expected growth of 2.5 percent this year and inflation was headed higher.

Speaking earlier Friday in Austin, Texas, Dallas Fed President Robert Kaplan said left open the possibility of a faster pace of rate increase than the three hikes Fed officials have penciled in for this year, according to their median estimate in December. “I've said that I think the base case for 2018 should be three removals of accommodation, and we'll see -- it could be more than that, we'll have to see,” Kaplan said.

The Fed held rates steady at a meeting this week and upgraded its outlook for inflation, while noting that the economy would likely warrant further gradual rate increases.

“Recent price data have been encouraging in this regard, and I expect that we'll continue to see inflation pick up this year and the next,” said Williams, who is said to have been interviewed for the post of Fed vice chairman. “Given that the economy's performing almost exactly as expected, you can expect policy makers to do the same.”

Williams, 55, has been interviewed or the post of vice chairman of the U.S. central bank, according to a person familiar with the discussions, though he was not viewed as being on the short-list for the job. The job has been vacant since Stanley Fischer retired in October. White House economic adviser Gary Cohn told Bloomberg Television earlier on Friday that the administration was “working on it” when asked for an update on the search for the No. 2 Fed position.

--With assistance from Jeanna Smialek

To contact the reporter on this story: Alister Bull in Washington at abull7@bloomberg.net.

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Alister Bull

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