Fed's Williams says moderate inflation overshoot acts as guardrail

FILE PHOTO: John C. Williams, president and CEO of the Federal Reserve Bank of New York speaks to the Economic Club of New York in the Manhattan borough of New York, U.S., March 6, 2019. REUTERS/Lucas Jackson

(Reuters) – The Federal Reserve’s new pledge to keep interest rates at zero until inflation is on track to “moderately” exceed 2% has come under fire for being overly vague and leaving too much up to U.S. central bankers’ judgment, but that’s exactly the point, a key author of the pledge said on Wednesday.

“Moderate isn’t a number…it’s a guardrail” against expectations that the Fed would tolerate very high or persistently high inflation, New York Fed President John Williams said at a virtual conference held by the Hoover Institution. “It’s also about proportionality; if we are undershooting the target by a few tenths… then you are obviously thinking that that’s the proportionality that you are thinking about in terms of trying to get that balance of 2%, but it is specific to the circumstances,” and where the economy is.

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