A top Federal Reserve policymaker signaled Friday that despite a "nearly healed" U.S. labor market, he will not support raising U.S. interest rates until he sees stronger signs of inflation.
"Until I have more confidence that inflation will be moving back to 2 percent, I’ll continue to be in wait-and-see mode regarding raising interest rates," San Francisco Federal Reserve President John Williams said in remarks prepared for delivery to the NBER East Asia Seminar on Economics.
Fed officials have for some time predicted that inflation, which for years has lingered below the Fed's 2-percent target, will rise as unemployment falls and the labor market tightens. Williams on Friday reiterated that forecast, but signaled he is loath to act before seeing his forecast borne out in actual data.
"I have yet to see convincing signs that the underlying trend in inflation has bottomed out and is poised to move back to 2 percent," he said, "I am wary of acting before gathering more evidence that inflation’s trajectory is on the desired path."
Fed officials ended their policy-setting meeting on Wednesday with a decision to leave rates at zero, where they have been since December 2008.
The comments from Williams, a centrist whose views are seen as in line with those of Fed Chair Janet Yellen, suggest that U.S. central bankers are on no hair-trigger to move soon.
Williams reiterated his staff's research suggesting that the economy probably grew about 1.5 percent in the first quarter, rather than contracting as government data has suggested.
Williams further predicted that GDP will grow at about a 2.75 percent annual pace for the next several quarters before slowing to a more sustainable pace next year. Unemployment, he said, will likely fall to 5.2 percent by year's end, and stronger wage growth is already evident.
Against that background, inflation is likely to move back to 2 percent by next year, he said.
"I still believe this will be the year for liftoff, and I still believe that waiting too long to raise rates poses its own risks," Williams said. "I see a safer course in starting sooner and proceeding more gradually."