San Francisco Fed president warns about low neutral interest rates

Low neutral interest rates in the US are a warning signal of possible changes in the country´s economy which the central bank does not yet completely comprehend.

"I see this as a warning sign, a red flag that there´s something goingon here thatisnñt in the models, that we maybe don´t understand as well as we think, and we should dig down deep and try to figure out better" the President of the San Francisco Fed, who is a voting member of the Federal Open Market Committee, said during a panel discussion at the Brookings Institute in Washington on Friday.

That low neutral rate has "pretty significant" implications for the US, John Williams remarked.

"If we could come up with better fiscal policy, find a way to have the economy grow faster or have a stronger natural rate of interest, then that takes the pressure off of us to try to come up with other ways to do it, like through a large balance sheet or having a higher inflation target," he added.

"It also means we don't have to turn to quantitative easing and other policies as much."