The Federal Reserve should be patient in tightening monetary policy further as U.S. economic growth moderates, New York Fed President John Williams said.

“At the start of 2018, when the economy was growing well above trend and interest rates still were still quite low, gradually raising rates was the obvious and necessary choice," he said Friday. “Twelve months later, the tailwinds have lost their gust, interest rates are closer to normal levels, and inflation is tame. The approach we need is one of prudence, patience, and good judgment.”

Fed Chairman Jerome Powell and others on the bank’s interest-rate setting Federal Open Market Committee have signaled they will probably pause a campaign of steady rate increases and take time to assess the outlook for the economy following a recent bout of volatility in financial markets.

The FOMC last month voted to raise its benchmark overnight rate by a quarter-percentage point for the ninth time in about three years and published projections suggesting it would probably be appropriate to authorize two more increases in 2019. The hike brought the current target range to 2.25 per cent to 2.5 per cent, which is still below what most on the committee view as a neutral level that neither stimulates nor slows economic activity.

‘Adjust My Policy’

“If growth continues to come in well above sustainable levels, somewhat higher interest rates may well be called for at some point,” Williams said in his remarks prepared for a speech in Somerset, New Jersey. “However, if conditions turn out to be less robust, then I will adjust my policy views accordingly.”

The New York Fed chief said the U.S. economy would probably grow between 2 per cent and 2.5 per cent in 2019, marking a step down from last year’s 3 per cent pace, “but still consistent with a healthy, growing economy.” He referred to the job market as “strong no matter how you cut it” and added that he doesn’t “see any worrying signs of inflationary pressures building.”

The FOMC’s projections last month for additional tightening contributed to a bout of turmoil which saw stocks report their worst December since the Great Depression. The equities market has since bounced back. Williams said Fed officials were monitoring those developments.

Balance Sheet

“Financial market indicators are a critical source of up-to-the minute information on how investors view the economy,” he said. “In addition, stock prices and interest rates affect the spending decisions of households and businesses, and the value of the dollar affects demand for exports and imports, so these are important factors shaping the economy’s trajectory.”

Williams also sought to reassure investors that the Fed would be flexible with regard to its balance sheet, which it’s been winding down for a little over a year.

“So far, this plan has worked very well,” he said. “But it is important to stress that if circumstances change, I will reassess our choices regarding monetary policy, including the path of balance sheet normalization.”