Nation & World

Williams: Fed hand-holding nearing an end

Incoming New York central bank chief says enough 'forward guidance'

Bloomberg

San Francisco Fed President John Williams speaks at the Brookings Institution in Washington, D.C., in January
Bloomberg San Francisco Fed President John Williams speaks at the Brookings Institution in Washington, D.C., in January

It’s almost time for the Federal Reserve to stop holding the market’s hand.

That’s the message from John Williams, president of the Federal Reserve Bank of San Francisco, who takes the helm of the central bank’s powerful New York branch on June 18.

In an interview on Tuesday, he said he thinks the time is approaching to phase out forward guidance — the nearly decade-old practice of pledging continued easy monetary policy.

The strategy was used to calm investors in the depths of the financial crisis, and the Fed continues to say rates will remain below levels likely to prevail over the longer run, even as it lifts borrowing costs to prevent overheating.

“We can’t keep talking about policy normalization once we’re around what we think of as a neutral interest rate,” Williams said in Minneapolis, referring to the level of interest rates that neither slows nor speeds up the economy.

“So I think this forward guidance, at some point, will be past its shelf life.”

Williams’ views on this — and all things monetary policy — are about to get more important. Together with Chairman Jerome Powell and the Fed vice chairman, the New York Fed president has traditionally been part of a leadership trio that steers the Federal Open Market Committee’s policy options. Williams is a centrist who backs its gradual approach to policy tightening, so his promotion reinforces continuity on the FOMC.

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