Fed’s Williams - Fed “not there yet” when it comes to reducing balance sheet

Fed’s Williams believes the central bank is ‘not there yet’ when it comes to reducing the balance sheet. Earlier this week, many Fed officials talked about reducing the balance sheet size this year.

After having warned about the risks of running policy too hot for too long, Fed’s Williams stressed the need to keep the inflation expectations anchored at 2% target.

Key quotes

Fed may want to follow BOC’s practice of reviewing inflation target

If interest rates remain low Fed needs to think hard about strategies like a higher inflation target

Inflationary pressures could still build as employment increased provides reason for Fed to stick close to 2% target

Fed is not purposefully trying to get inflation above 2% in order to make up for years of weak price increases.