Global weakness poses the main threat to the outlook for an otherwise robust US economy, a top US Federal Reserve official said on Friday, highlighting a headwind that investors bet might delay Fed rate increases until late this year.
“Weakness abroad is trimming some from my forecast” for US growth, US Federal Reserve Bank of San Francisco President John Williams told reporters after a speech at the regional Fed bank. “The big negative on the US economy and financial markets is abroad.”
He spoke on a day of economic data that continued to send mixed signals for policy: Consumer confidence rose to an 11-year high, while a measure of inflation dropped by the most in six years. Stocks climbed, snapping a five-day slide in the S&P 500, as energy shares rallied with the price of oil.
Fed officials are closely watching expectations for future inflation, which have declined in recent weeks. St Louis Fed President James Bullard told a Chicago event on Friday that a central bank “must protect its credibility with respect to its inflation goal.”
Williams, a voting member of the policy-setting Federal Open Market Committee this year, whose views are often close to those of US Federal Reserve Chair Janet Yellen, said he is in no hurry to raise the central bank’s key interest rate, which has been held near zero since late 2008.
“There’s no need to rush to raising rates,” he told reporters. “At the same time, we want to make sure that we appropriately act in a way that we don’t get behind the curve.”
He said it would be appropriate for the Fed to start considering raising interest rates mid-year, based on his forecast for US growth of between 2.5 percent and 3 percent, with inflation rising toward the Fed’s 2 percent goal.
Consumer prices declined by 0.4 percent last month compared with the month before, a US Department of Labor report showed. Prices rose 0.8 percent a year earlier.
As measured by the Fed’s preferred gauge, the personal consumption expenditures price index, prices rose 1.2 percent from a year earlier in November last year. The core measure, which strips out volatile food and energy prices, increased 1.4 percent in November.
Minneapolis Fed President Narayana Kocherlakota, in a speech in Minnesota, repeated that markets show “troubling signs” the Fed is losing credibility on its inflation goal, and that officials should not lift rates this year.
“Maybe the data will push us a little bit further one way or the other,” Williams said. “I’m not making a prediction of what the Fed will do. But I think the good news here is the economy has improved a lot, we’re in a pretty good place.”
Williams, 52, said the outlook for inflation was more important to him than the impact on growth of weaker global demand, and he played down the decline in US consumer prices last month.
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