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Fed's Williams Joins With Other Officials Leaning Toward Rate Cuts --Update

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07/11/2019 | 04:54pm EDT

By Michael S. Derby

ALBANY, N.Y. -- Federal Reserve Bank of New York President John Williams said the case for lowering short-term interest rates is getting stronger, opening the door to his support for easier monetary policy at the end of this month.

"If anything, relative to earlier in the year, the conditions, the arguments for adding policy accommodation have strengthened over time, and I think that's the way I continue to view it," Mr. Williams told reporters after delivering a speech at the University at Albany.

Mr. Williams said last year was a good year for growth even as inflation continued to fall short of the Fed's 2% target, and at the start of this year, his read on the economy was that "the risks seemed relatively balanced."

But since then, the outlook has darkened a bit: "We've got the uncertainties, especially related to trade and global growth. We have issues around inflation expectations being soft, obviously inflation continuing to run below 2%," and all of that added together suggests monetary policy may need to move to a setting that is more supportive of growth.

Mr. Williams's comments on the short-term rate outlook came in a busy week for central bank communications, and as markets expect the central bank to lower rates at its July 30-31 Federal Open Market Committee meeting.

In comments before Congress over Wednesday and Thursday, Fed Chairman Jerome Powell opened the door to lowering the federal-funds rate target range from between 2.25% and 2.5%, although he didn't commit to action. Financial markets broadly expect to see a quarter-percentage-point easing at month's end.

"The bottom line is the economy is in a very good place, and we want to use our tools to keep it there," Mr. Powell said in testimony before a Senate panel Thursday.

Mr. Williams told reporters that part of the reason for lowering rates would be to help keep in place a shift in overall financial conditions that is itself tied to investors' expectation of rate cuts.

"The markets expect cuts so therefore you see lower mortgage rates, you see lower interest rates, and stronger financial conditions broadly, and I think that contributes to more consumer spending and business spending, " Mr. Williams said.

The New York Fed chief, in his prepared speech, said that "the economy is in a good place." But he added, "After surging ahead last year, the U.S. economy appears now to be growing at a more moderate pace," with growth in 2019 likely to be around 2.25%. He said that even with slower growth, his expected path of growth was still above the economy's long-term sustainable path.

Mr. Williams also discussed inflation weakness, saying: "The major challenge with inflation that's persistently lower than 2% is that low inflation feeds into inflation expectations."

"If inflation stays too low, people will start to expect it to stay that way, creating a vicious cycle, pushing inflation further down over the longer term, and making it harder to achieve our goals through monetary policy," he said.

The official pointed to moderating business-investment levels, falling factory production and slower international growth as additional issues. "The outlook for growth outside the United States has dimmed, which will weigh on demand for U.S. products," he said.

Jimmy Vielkind contributed to this article

Write to Michael S. Derby at michael.derby@wsj.com

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