Federal Reserve Bank of New York President John Williams said Thursday low interest rates are likely to be a persistent issue for some time to come, which will create challenges for how central banks operate.
Mr. Williams, whose comments came from the text of remarks to be given in London, didn’t comment about the outlook for short-term rates and the economy. Mr. Williams is also vice chairman of the rate-setting Federal Open Market Committee, which is due to meet at the end of the month in a gathering that is almost certain to leave the overnight federal-funds rate target range unchanged at between 1.50% and 1.75%.
In his remarks, Mr. Williams affirmed what he saw as the strong value of the central bank’s inflation targeting system, even as the Fed has consistently failed to achieve its 2% goal since adopting it in 2012.
The low level of rates now seen in the economy “are largely a result of global, longer-term structural factors,” Mr. Williams said. “They’re driven by demographic changes, slow productivity growth, and demand for safe assets — all of which are unlikely to reverse any time soon.”
With interest rates and inflation at historically low levels it means the Fed won’t be able to raise rates as much as it once did, and when the next downturn arrives, it increases the chance short-term rates will be lowered to near-zero levels, where monetary policy resided for the bulk of the financial crisis and its aftermath.
