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* Williams says will attend next Fed meet with open mind
* Fed's 2-percent inflation goal not written in stone:
* Yellen has said raising inflation target not actively
By Ann Saphir
RENO, Nev., Sept 6 Raising U.S. interest rates
makes sense now that the economy is at full employment and
"within sight" of the central bank's 2-percent inflation goal,
a top Federal Reserve official said on Tuesday.
"An increase is on the table" at the Fed's next meeting, on
Sept 20-21, San Francisco Fed President John Williams told
reporters after a speech in Reno, Nevada in which he said he
prefers a rate hike "sooner than later."
Still, he said, he will not necessarily advocate for a rate
hike at the coming meeting.
"When it will happen and if it will happen will depend on
what we are seeing," he said, adding that he has not yet weighed
the impact of the latest data showing a slowing services sector.
Federal Reserve officials have sought in recent weeks to
revive expectations of an interest rate hike this year, after
repeated delays in response to slowdowns in China and Europe.
The Fed lifted rates for the first time in nearly a decade
last December. Traders are split on whether the Fed will raise
rates even once this year.
Once rate hikes restart, Williams predicted, the path of
increase will be the "shallowest in American history."
Williams says he sees slower rate hikes now than he did a
year ago largely because he believes low productivity growth and
an aging population has slowed the potential rate of economic
growth in the U.S. to just 1.5 percent to 1.75 percent a year.
That in turn means that interest rates will only eventually
rise to 3 percent, if that, he said.
"That doesn't give us a lot of room to cut interest rates
if there's a recession," he told the group. "One way to get a
little bit more buffer is to have an inflation target of 3
percent or even a little bit higher."
The Fed has targeted 2 percent inflation explicitly since
2012, and Williams noted that some policymakers and economists
are dead set against a higher goal.
But, Williams argued Thursday, the inflation wars of the
1970s are over, with low inflation now the biggest global issue.
Besides, he said, 3 percent or even 4 percent inflation is not
"Two percent was not given to us on a stone tablet,"
The Fed could also shift away from inflation targeting
altogether and instead target a nominal level of national
economic output, Williams said.
(Reporting by Ann Saphir; Editing by Leslie Adler and Simon