John Williams of the US Fed says there is no urgent need to cut rates again

Federal Reserve President John Williams told CNBC on Friday that he sees no immediate need to follow last week’s rate cut with another cut in borrowing costs, adding that new inflation data is plagued by distortions. Williams said he has “no sense of urgency about having to move forward now on monetary policy because I think the cuts that we’ve made have positioned us very well,” he said in the CNBC interview.

A major goal of the Fed’s policy at the moment is to boost the labor market while at the same time returning inflation to the 2% target. With that balancing act, Williams said of interest rate policy, “I feel like we have this in a pretty good place.” Williams said the resumption of key inflation and hiring data in the wake of the resolution of the recent 43-day government shutdown has not proven to be a game changer, while adding that there are currently some technical issues that complicate interpretation of the new figures.

In the case of Thursday’s release of the Consumer Price Index for November, Williams said the report “represents a continuation of the disinflationary process that we have seen.” However, he added that special factors and technical issues with the report due to incomplete data collection suggest that “the data was skewed in some categories, and that probably pushed the CPI value down by about a tenth (of a percentage point)” upon reading it.

The CPI rose 2.7% year-on-year in November, after rising 3.0% in the 12 months to September. On the hiring front, Williams also saw some complications related to the data. “We’re seeing a steady increase in the number of jobs… especially in the private sector,” he said, adding that “because they couldn’t collect the data in October, the unemployment rate probably went up by a tenth (of a percentage point) in November,” but even then the findings weren’t much of a surprise.

MARKETS ARE WATCHING THE FED MEETING IN JANUARY

The Fed cut its key interest rate by a quarter of a percentage point to the 3.50%-3.75% range as policymakers sought to balance supporting a weakening labor market with efforts to bring still-high inflation levels back to the 2% target.

Markets are debating whether the US central bank will be able to implement another rate cut at its meeting in late January, but officials have yet to provide much guidance on that front. In his remarks Friday, Williams reiterated that he needs to see more data before he feels comfortable with the Fed cutting rates again, and that another cut in January could be a difficult decision.

Williams noted that “we are still mildly restrictive when it comes to the stance of monetary policy. We still have some room to go before eventually returning to neutral.” He also said, “I see interest rates eventually going lower because if inflation goes all the way down to 2%, we’re going to need an interest rate that’s consistent with that.”

He added that the Fed’s move to resume asset purchases to rebuild the size of its balance sheet is not a form of stimulus known as quantitative easing, or QE, and is technical in nature.

“We’re obviously not doing QE, from my standpoint we’re not trying to change the 10-year term premium or anything like that,” Williams said of the large amount of Treasurys the Fed has started buying. The purchases are intended “to provide reserves to the banking system to meet the demand that banks in our country and those operating here need to carry out their activities.”