Soothing Williams says Fed listening to markets, could change policy


NEW YORK (Reuters) – The Federal Reserve is listening to concerns expressed by markets and open to reassessing its policy views next year, one of the most influential Fed officials said on Friday, even while he stood by plans for a couple more interest-rate hikes and further paring of a bond portfolio.

FILE PHOTO: A cyclist passes the Federal Reserve building in Washington, DC, U.S., August 22, 2018. REUTERS/Chris Wattie/File Photo

The comments from New York Fed President John Williams came two days after the U.S. central bank raised rates and delivered a confident assessment of the U.S. economy that, on Wall Street and around the world, was met with a broad market selloff.

While sounding more conciliatory, especially on the Fed’s plan for its balance sheet, Williams did not commit to a more dovish monetary policy.

“Importantly, we are listening that there are some risks to that outlook. There are clearly some concerns that the economy will slow further,” he said on CNBC. “We are not sitting there thinking we actually know for sure what is going to happen.”

The comments sent the benchmark 10-year Treasury yield and dollar to session highs, while the S&P 500 climbed as much as 1.5 percent. The move was short-lived, however, with each unable to sustain those levels.

The Fed on Wednesday raised rates a notch and slightly downgraded median expectations to two more rises in 2019, and one more in 2020. The selloff began in force when Chairman Jerome Powell told reporters there was no plan to stop trimming $50 billion per month from the Fed’s swollen balance sheet.

Williams, a close ally of Powell and a permanent voter on policy, said he did “not at this point” believe that plan should change given a “very strong” economic outlook. But he said “we will go into the new year with eyes wide open, willing to read the data and listen to what we are hearing, re-assess our economic outlook, and take the right policy decisions.”

The Fed bought some $3.5 trillion in bonds to help spur recovery from the 2007-2009 recession and it began letting them run off in October last year. Williams noted that the Fed has long said the plan would be adjusted if there were a “material deterioration” in the economic outlook.

He expects “somewhat slower but still very strong” growth next year with “very solid” job gains, and added the Fed is “listening to not only markets but everybody that we talk to.” Williams also predicted two rate hikes next year “in the context of a really strong economy moving forward.”

Futures traders on the other hand see at a maximum one hike next year, and a good probability of rate cuts in 2020.

The “main takeaway was he came across as a more soothing and empathetic voice than Powell,” said Karim Basta, chief economist at III Capital Management.

Reporting by Jonathan Spicer; Editing by Chizu Nomiyama

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