World Economy

Fed’s Sept. Rate Hike Makes Sense

The Federal Reserve Bank.
The Federal Reserve Bank.

San Francisco Federal Reserve Bank President John Williams on Thursday joined a growing chorus of his colleagues signaling support for a US interest rate hike in the coming months, saying that waiting too long could be costly for the economy.

“I think every one of our meetings should be in play in principle ... I definitely think September should be,” Williams said, referring to the US central bank’s next policy meeting. “I think that makes sense given where the economy is,” Reuters reported.

Saying he is in no hurry to raise rates, Williams nevertheless warned that the economy could overheat if rates are kept low for too long, like a party at which the host fails to remove the punch bowl.

New York Fed President William Dudley and Atlanta Fed President Dennis Lockhart have also in recent days made the case that the US economy is in good shape and that the Fed should soon restart an expected run of gradual rate hikes that it began last December but shelved amid financial market turmoil and fears of the effects of a slowdown in China and Europe.

Their voices are especially notable against a backdrop of market bets and some analyst commentary that the Fed will never raise rates.

Williams on Thursday told reporters that despite his call for a longer-term rethink, monetary policy must for now be set based on current goals, including full employment and a target of 2% inflation.

Meanwhile, former Federal Reserve Chairman Alan Greenspan forecast that interest rates will begin rising soon, perhaps rapidly.

“I cannot perceive that we can maintain these levels of interest rates for very much longer,” he told former Securities and Exchange Commission Chairman Arthur Levitt in a Bloomberg Radio interview to be aired this weekend and next.

“They have to start to move up and when they do they could move up and surprise us with the degree of rapidity which may occur,” Greenspan added.

The yield on the 10-year Treasury note stood at around 1.55% on Thursday, down from 2.27% at the start of the year. Greenspan repeated his previously-voiced concern that the US economy was headed toward a period of stagflation—stagnant growth coupled with elevated inflation.

“The very early stages are becoming evident,” with unit labor costs beginning to rise and money supply growth starting to accelerate, he said.