MNI BRIEF: Williams Says FOMC Needs Positive Real Rates

The Federal Reserve needs to get inflation-adjusted rates above zero in order to weaken demand in the economy enough to bring down inflation toward the Fed’s target, New York Fed President John Williams said Tuesday, adding he has still not decided whether a 50 bps or 75 bps rate hike will be appropriate at the September meeting.

“We do need to get real interest rates, that’s the interest rate adjusted for inflation, above zero. We need to have a somewhat restrictive policy to slow demand,” Williams said in a live interview with The Wall Street Journal. “So if you think next year inflation is say somewhere 2.5% to 3% -- that’s a lot lower than it is now but that’s a forecast that I think is reasonable, then you’re thinking about having interest rates well above that.” (See MNI INTERVIEW: Fed’s Harker Wants Rates Above 3.4% By Year-End)

Two-year Treasury yields were little changed at 3.48%, having hit their highest level since 2007 after Fed Chair Jerome Powell’s hawkish remarks at Jackson Hole.