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Federal Reserve

Williams says the Fed has the tools to fight a recession and can use them 'more quickly' next time

Key Points
  • New York Fed President John Williams said he's confident the central bank has the right tools to fight the next economic downturn.
  • He cited forward guidance and quantitative easing as the Fed has limited room to cut rates.
  • Williams also said worries about the negative consequences from using QE and low rates didn't materialize.

New York Federal Reserve President John Williams said the central bank has the tools to fight another recession and could deploy them even more aggressively next time around.

Williams indicated the Fed has enough stimulative methods even as its benchmark interest rate is now below 2%, leaving little room for major cuts.

Specifically, he said monetary policymakers could use asset purchases, or quantitative easing, as well as forward guidance, or public statements on the intention to keep rates lower for an extended period time, both of which helped pull the economy out of the Great Recession.

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NY Fed President John Williams: Low inflation is 'the problem of this era'

"We have the same toolkit we had in the last decade," he said during a forum at the University of California, San Diego. "I think we learned a lot about the benefits and some of the limitations. But we've also learned that some of the concerns about the costs and the negative effects ended up being much smaller than some of the fears. So I think that gives me more confidence that we could use those tools more quickly and more effectively early on in a future downturn if that happens."

Williams spoke as the stock market experienced an aggressive sell-off amid inflation fears, ongoing geopolitical turmoil and worry over a global slowdown.

While he characterized the U.S. economy as "in a good place," Williams said he's more worried about growth and low inflation in other parts of the world.

"Right now, my view is obviously we've got monetary policy in the right place. I think we are taking into consideration all these other issues," Williams said.

The Fed has cut rates twice this year and is now expected to approve a third reduction at its Oct. 29-30 meeting. The benchmark funds rate, which banks charge to each other for overnight borrowing, is targeted in a range between 1.75% and 2%.

Williams briefly addressed the recent funding issues in the overnight lending market, saying the New York Fed, which conducts the operations, is working to correct the problems and "really understand what happened in the plumbing of the financial system."