New York Federal Reserve President John Williams has spoken about the need to take decisive action in the face of slowing growth when interest rates are already low, with his advice to avoid maintaining elevated rates suggesting that further cuts may be round the corner.
Williams was speaking what should be done when central banks are close to the ‘zero lower bound’ – the point where there are no further rate reductions to be made.
“It’s better to take preventative measures than to wait for disaster to unfold,” the policymaker told the annual meeting of the Central Bank Research Association.
“When the ZLB is nowhere in view, one can afford to move slowly and take a ‘wait and see’ approach to gain additional clarity about potentially adverse economic developments. But not when interest rates are in the vicinity of the ZLB,” he added. “In that case, you want to do the opposite, and vaccinate against further ills. When you only have so much stimulus at your disposal, it pays to act quickly to lower rates at the first sign of economic distress.”
Some have taken Williams’ comments as an inference that the Open Market Committee will cut its benchmark interest rate when it meets at the end of the month. A spokesperson for the New York Federal Reserve was quick to play this down though.
“This was an academic speech on 20 years of research. It was not about potential policy actions at the upcoming FOMC meeting,” the spokesperson said.