The Federal Reserve could raise interest rates as many as five times this year, according to San Francisco Fed President John Williams.
“I think something in that three-to-five-rate-hike range makes sense, at least at this time,” Williams told CNBC.
The Fed in December lifted target interest rates for the first time since 2006. The median estimate of quarterly Fed projections released in December was for four quarter-point hikes this year.
Williams said the U.S. economy is “in very good shape” and remains stronger than other major global economies.
The economy is on pace for continued job gains in 2016 after adding an estimated 2.5 million jobs last year, he said. Williams said the nation needs between three to five rate hikes this year to meet his forecast of about 2 percent to 2.25 percent economic growth and 4.5 percent unemployment by the end of the year.
Williams is not a voting member of the Fed’s policy committee this year, but his views remain important because he is widely seen as a key ally of Fed Chairwoman Janet Yellen, having served as one of her top advisers when she led the San Francisco Fed.
Williams said he was not surprised or concerned by weak Chinese economic data, which many blame for Monday’s stock-market selloff. China, he said, has been undergoing a pretty significant shift for some time away from manufacturing and toward consumer spending.
Williams said he doesn’t have a stock-market terminal on his desk telling him when the market moves up and down. He said the Fed is focused on the medium term and understanding why the market is moving, “rather than responding to just ups and downs.”
The overall trajectory of U.S. interest-rate increases over several years matters more than the exact number of rate hikes this year, Williams said.
"If we did fewer in 2016 we'd probably have to do more in 2017," Williams said. Over several years, he projected the Fed would raise rates to around 3.5 percent.
He said that while he is not too concerned about asset prices being overly high, the rapid rise in commercial real estate prices does bear careful watching.
Williams, who doesn’t vote on policy again until 2018, also downplayed overall market turmoil, saying he expected unemployment in the U.S. to fall below 5 percent and inflation to begin moving back toward the Fed’s 2 percent target this year.
“We are, relative to most other countries, in very good shape, partly because we took very aggressive monetary policy actions, and other actions, to get our economy back on track,” Williams said in an interview on CNBC.
Still, Williams added that because weak overseas growth would continue to hurt exports, the Fed would have to continue with “significant monetary accommodation” to keep growth above 2 percent.
However, many financial experts disagree with Williams about the need for higher rates.
Famed market watcher Jim Grant thinks the central bank will actually be forced to backtrack in 2016.
"I think what they are going to do is not what people expect," Grant told CNBC. "As [the Fed] read the data, it felt it had to move. It had been saying for so long that it would. It had to and it did. But that doesn't mean it was right to do so," he said.
"They missed their mark," the founder and editor of Grant's Interest Rate Observer told CNBC.
He said the Fed should have increased rates years ago, which would have allowed asset prices to reset, CNBC reported. "As hard as it might have been, it seems to me a market-driven recovery with price discovery rather than price administration would have been the way forward," he said.
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