NY Fed’s Williams says faster taper creates possibility of rate increases next year

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FILE PHOTO: John Williams, CEO of the Federal Reserve Bank of New York, speaks at an event in New York

– Federal Reserve officials are focused on bringing inflation down to their 2% goal and ending the taper by March will give them greater “optionality” next year to raise interest rates if needed, New York Fed Bank President John Williams said on Friday.

With inflation running “too high,” it made sense for officials to double the pace of the taper so they could end the purchases by mid-March instead of June, Williams said. But he said it may not be necessary to speed the taper up any further.

“We are ending the program pretty soon, it’ll be done in mid March .. And I think that’s exactly the right thing to do,” Williams said during an interview with CNBC. “I don’t see there’s any real benefit to try to speed it up further.”

Williams spoke two days after Fed officials announced the faster taper and signaled that they could raise interest rates three times next year in response to stronger labor market growth and elevated inflation.

“It’s really about getting our monetary policy stance in a good position and also obviously creating the optionality at some point next year, likely, to actually start raising the federal funds target range,” he said.

The policymaker said any future decisions on interest rates would be driven by economic data.

Williams said he expects further labor market gains and sees the U.S. unemployment rate dropping to 3.5% by the end of 2022. He forecasts that growth will be “well above trend” next year and expects inflation will come down but still be above the Fed’s 2% target.

(Reporting by Jonnelle Marte)