Fed policymaker sees further rate rises

John Williams Image copyright Reuters

US interest rates are likely to rise again next month and a further three times next year, one of the Federal Reserve's rate-setters has said.

John Williams, who sits on the Fed's Open Markets Committee, said a rate rise in December "makes sense, at least based on the information I have today".

He also told the BBC he was "pencilling in" three further increases next year, as interest rates returned gradually to "a normal level" of about 2.5%.

The key rate target is now 1% to 1.25%.

That's the highest level since 2008, when policymakers cut rates to encourage borrowing and spending after the financial crisis.

The Fed raised interest rates for the first time since the crisis in December 2015.

Policymakers acted in December 2016 and again in March and June this year.

Stimulus problems

Mr Williams said that central bankers globally faced new problems.

"Due to fundamental shifts in demographics and slower growth," he said, "the new normal for interest rates is likely to be much lower in the future than in the past."

He added: "I think this is going to be the big challenge for us going forward - how to operate monetary policy effectively when the normal or average interest rate is 2.5 to 3%.

"During a recession, the typical response of a central bank like the Fed would be to cut interest rates by five percentage points to stimulate the economy.

"Well, if you're starting from 2.5 or 3%, you obviously don't have as much manoeuvring room to give the economy a boost."

'More continuity'

Mr Williams said Janet Yellen had done a "fantastic job" as Fed chair "during a very difficult period of time".

He said he expected her successor, Jerome Powell, who takes over in February next year, to continue "making sure that we have a strong consensus around our policy decisions and strategy".

"From my own perspective, I think there will be more continuity than differences in terms of the approach to policy."

On banking regulation, Mr Williams added: "I do think there's areas where many people in the Fed think that we can adjust the approach around supervision regulation of especially smaller or medium-sized banks in ways that will not risk financial stability issues or things like that, but maybe are positive for the economy."