MNI POLICY: Williams Says New Framework Sets Fed For Success

New York Fed President John Williams said Wednesday the Fed's new framework represents an "important evolution" that will directly and effectively address the problems caused by a low neutral rate and persistently low inflation.

"Following periods when inflation has been running persistently below 2 percent, a temporary overshooting of the longer-run inflation target will likely be desirable to keep inflation and inflation expectations centered on 2 percent," Williams said.

That statement "makes unequivocally clear that we seek maximum employment and will aim to eliminate shortfalls from this broad and inclusive goal," he said in prepared remarks for a Bretton Woods Committee webinar.

"Lower neutral interest rates constrain the ability of monetary policy to offset negative shocks to the economy," the New York Fed leader said, noting the Fed's measure of long-run neutral rates has drifted down to 2.5% as of June from 3.8% in 2015.

A separate measure published by the New York Fed Monday estimated the real short-term neutral rate at 0.03% on April 1, down from 0.71% on Jan. 1.