MNI POLICY: Fed Williams Flags Inflation Expectations Risk

By Jean Yung

     WASHINGTON (MNI) - Inflation that is running below the Federal Reserve's 2%

target risks dragging down inflation expectations and pushing inflation down

further over the longer run, New York Fed President John Williams said Thursday.

     "If inflation stays too low, people will start to expect it to stay that

way, creating a vicious cycle, pushing inflation further down over the longer

term, and making it harder to achieve our goals through monetary policy," he

said in remarks prepared for the University at Albany - State University of New

York. 

     He additionally warned that the slowdown abroad will dampen U.S. exports

and affect the economy, which is already seeing a decline in manufacturing

output and business investment, 

     Although "very positive" consumer spending data has underpinned the

continued expansion, the economic picture is more "nuanced," he said. 

     "The latest indicators suggest that business fixed investment has softened

and that manufacturing production is in decline. And the outlook for growth

outside the United States has dimmed, which will weigh on demand for U.S.

products," he said. 

     He expects the U.S. economy to slow to a 2.25% rate of growth this year,

moderately above its longer run trend. 

     He did not comment on the interest rate outlook. 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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