The U.S. central bank should stick to the plan of gradual rate hikes even though the economy has shown such ‘buoyancy’ recently,” said San Francisco Fed President John Williams on Friday.
In a speech to the Financial Women of San Francisco, Williams insisted the Fed should not “have a knee-jerk reaction to all this positivity” about the economy.
Raising rates too rapidly could knock the expansion off track “and that’s the last thing I want to see happen,” Williams, who is a voting member of the Fed’s interest-rate committee, said.
In December, the Fed penciled in three rate hikes for 2018. Signs of wage gains in the January unemployment report won’t push the Fed to tighten at a faster pace, most economists said.
Read: Early-year wage acceleration won’t push Fed to hike rates faster or further
Still some Fed watchers are now forecasting the central bank might have to hike rates further and faster than expected, especially given the weaker dollar, rising oil prices, and fiscal stimulus from the Republican tax cut.
The 10-year Treasury yield TMUBMUSD10Y, +0.00% hit a 4-year high after the strong January wage gains. As a result, stocks plunged, with the Dow Jones Industrial Average DJIA, -2.54% falling as much as 600 points and the S&P 500 SPX, -2.12% dropping around 2%.
In his speech, Williams noted that inflation appears to “finally” be turning higher toward the Fed’s 2% target, but added he did not think the economy was overheating.
“For the moment, I don’t see signs of an economy going into overdrive or a bubble about to burst, so I have not adjusted my views of appropriate monetary policy,” he said.
Wages are only “slowly ratcheting up,” he said.
“I expect continued moderate growth, with no Herculean leap forward,” he added.
Williams did caution that if he sees signs inflationary pressures are building too fast, he’ll adjust his views and advocate for a change of policy.
Earlier Friday, Minneapolis Fed President Neel Kashkari said if wage gains continue to build, the Fed might have to respond.
And in a separate speech in Austin, Dallas Fed President Rob Kaplan said the recent data has made him more confident that three hikes are needed this year,” according to Reuters.