A governor of the U.S. Federal Reserve says cataclysmic changes in economic conditions have pushed interest rates considerably lower than they were in the past. And, says San Francisco Fed President John Williams, they're likely to stay there for a while.
While Williams did not give a specific forecast for rates ahead, he said the pace is likely to continue to be gradual. He spoke specifically about the so-called neutral rate, which is neither restrictive nor stimulative.
"The neutral rate appears to be much lower today than it was 10 or 15 years ago," he said during a speech in the city by the Bay. "If you would have asked me 20 years ago ... what's the neutral interest rate, I would have said 4.5%. ... You ask my colleagues today, the answer today is 3%."
Williams has been nominated to switch coasts and take the presidency at the New York Fed, but has not been confirmed by the full central bank board yet.
He said rates have been held low by an aging population, declining productivity and a "savings glut" in which cash and equivalents remain in high demand.
The conditions will lead to a "gradual raising of the fed funds rate, as we've been doing for the last couple years."
The Fed has increased interest rates once this year and is expected to move two or three more times before 2018 ends.
