Fed's Williams still prefers two rate hikes this year

By Ann Saphir

LOS ANGELES (Reuters) - The U.S. Federal Reserve will likely raise interest rates this year, a Fed policymaker said on Wednesday, adding that his personal preference continues to be for two rate hikes before the end of the year.

"I still believe this will be the year for liftoff, and I still believe that waiting too long to raise rates poses its own risks," San Francisco Fed President John Williams said, repeating a view he expressed after the Fed ended its June meeting with a decision to keep rates near zero.

He later told reporters there hadn't been any economic data since that meeting that had changed his view that the Fed should raise rates by half a percentage point this year. By September, he said, there should be enough new data to make a better judgment on a potential policy change.

"We will get greater clarity on what's happening in Greece and the euro area," he said, in addition to new information on U.S. growth, inflation, and the labor market. The data could also put to rest policymakers' worries about the first-quarter economic "pothole."

Minutes from the June Fed meeting showed policymakers wanted to see more positive economic data before raising rates and had concerns about market tumult abroad.

Williams has consistently expressed confidence that the slight contraction in the first quarter hides what was probably about 1.5 percent real growth.

A decline in labor market slack, an unemployment rate headed below 5 percent next year, and expected GDP growth of 2.75 percent for the next couple of quarters bodes well for the U.S. economy, he said, even as low inflation remains a worry.

"I see all the factors in place to meet our inflation goal by the end of next year," he said.

Still, he said, "I am wary of acting before gathering more evidence that inflation’s trajectory is on the desired path."

Williams downplayed the risk to the U.S. economy from Greece, where a debt crisis is sending daily life into chaos. Euro zone leaders earlier set an end-of-the-week deadline for Greece to come up with a proposal to secure loans needed to keep its economy functioning.

The European Central Bank "has clearly sent strong signals that they would do what it takes to respond if Greece exits" from the euro, Williams said.

He also said a May visit to China had reassured him that the country will take policy measures to manage its growth. China's stock market rout, he said, is not a "main" issue for the U.S. economy.

(Reporting by Ann Saphir; Editing by Meredith Mazzilli)

You May Also Be Interested In

• Goldman Sachs raises Europe stock earnings forecast to 15%
• Six dead in Indiana after storms and floods, emergency officials say​​
• Prediction market operator Kalshi hits back at Nevada regulator over geofencing fine