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3/24/2017, 8:20 PM (Source: TeleTrader)
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Fed's Williams: Rates, QA need simultaneous action

Another non-voting member of the Federal Open Market Committee put an emphasis on the bloated balance sheet and the reinvestment of principal payments, highlighting the issue which can potentially cause a split among policymakers in the United States. According to John Williams, who leads the central bank's subsidiary in San Francisco, current measures are weighing on term premium while long-term yields may be 0.75 percentage points below the fundamental value.

Speaking in Washington on Friday the dovish-leaning Federal Reserve official added the neutral rate of interest would likely be lowered further when the Federal Reserve decides to begin unwinding the balance sheet. The best tightening strategy would be to go slow both with increasing interest rates and shifting away from quantitative easing (QA), Williams suggested. He went on to say a lower neutral rate makes traditional monetary policy tools less effective

Targeting nominal gross domestic product and inflation could be considered by the Fed as better options for upcoming turns of the cycle, as near-zero levels are a reality, the central banker stated.

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