Williams: Concerned inflation expectations are anchored too low – RTRS


Federal Reserve Williams is continuing to speak.

Key comments:

  • The natural rate of unemployment could be around 4%;
  • Sees the link between economic strength and inflation;
  • Inflation expectations are ‘far more anchored’ compared to 25 years ago;
  • Standard inflation targeting approach may anchor inflation expectations too low.
  • Concerned inflation expectations are anchored too low.
  • Risk of lower rates risks asset bubbles and excessive credit. 

Prior comments on the session:

  • It is better to take preventative measures on rates than to wait for disaster to unfold;
  • Says research shows that when neutral rates are low you should not ‘keep your powder dry’;
  • Says policymakers must move more quickly to vaccinate the economy and add monetary stimulus when rates are close to zero;
  • Says when rates are near zero, policymakers cannot afford to take a wait and see approach;
  • Says lower-for-longer rates foster good financial conditions, allow stimulus to pick up steam, allows inflation to rise;
  • Says promising temporarily higher inflation after rates touch zero can offset nearly all negative effects of low rates;
  • Says if inflation gets stuck below the goal, people’s expectations may push inflation lower, reducing fed’s ability to be effective.

About the Federal Reserve

The Federal Reserve System is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a series of financial panics led to the desire for central control of the monetary system in order to alleviate financial crises.

Implications for FX

The dollar is weakening against the G10s to lower lows for the session.

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