LOS ANGELES — The head of the Federal Reserve Bank of San Francisco gave attendees of a Town Hall Los Angeles event a glimpse into what the Fed might announce at its March meeting.
The economic fate of other countries does not predetermine that of the U.S., and stock market volatility doesn't necessarily foreshadow a recession, said John Williams, president and chief executive officer of the Central Bank's San Francisco district.
Williams declined to be more specific about what this year's rate increases might look like given the "headwinds" he described in his Thursday keynote speech.
Though inflation is below the 2% average that the Fed thinks is healthy for the economy, he described the U.S. economy as strong with the unemployment rate at 4.9% in January.
The Fed raised rates to a range of 0.25% to 0.5% in December and then decided to hold those rates steady at their January meeting. They also proposed raising rates to a median of 1.4% this year, which was anticipated to occur through four increases.
With the March meeting four weeks out, Williams said in a press briefing following his speech that his focus is on collecting data and he wants to see what his colleagues have to say about economic growth and interest rates.
If his forecast becomes stronger on inflation, output or employment, he will recommend a steeper path of rate increases, but if things become weaker than a shallower path is warranted, Williams told reporters.
Williams said in his speech, however, that his preferred route is a gradual path of interest rate increases and a gradual pace of policy normalization.
While the Fed tracks international developments as well as stock market fluctuations, neither dictate the Central Bank's course of action, Williams said.
"Watching a stock ticker isn't the way to gauge America's economic health," Williams said.
Short-term fluctuations aren't accurate reflections of the state of the "vast, intricate, multilayered US. economy," he said.
"Remember, the expansion of the 1980s wasn't derailed by the crash of '87, and we sailed through the Asian financial crisis a decade later," he said.
What is important is how it impacts jobs and inflation in the U.S., he said.
"Of, course we are closely watching situations abroad," said Williams, but not "because we should act, say, in response to volatility in China."
While he is concerned about China's slower pace of growth, he said it largely reflects a pivot from a manufacturing-based economy to one driven by domestic consumption and services, not unlike what is occurring in the U.S. He also expressed faith in the measures Chinese leaders are taking, all of which he said were expected.
Global markets affect U.S. growth, but it is also powered by domestic demand and, he said, this country has the ability to make its own monetary policy.
"Others' economic fates do not spell our own," he said.
Williams contended that with the policy tools at its disposal the U.S. can continue to achieve its employment and inflation goals.
He said he expects the effects of the drop in oil and strengthened dollar to peter out.
Williams also injected what he called his standard disclaimer that his views are his alone and do not necessarily reflect those of others in the Federal Reserve System.
His bank serves the Twelfth Federal Reserve District, which consists of Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Utah, Washington, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands. The bank is one of 12 regional Federal Reserve Banks that, together with the Board of Governors in Washington, D.C., make up the Federal Reserve System.
