Fed's Williams: Central banks should consider raising the annual target from 2%

Federal Reserve Bank of San Francisco's President John Williams crossed the wires last minutes, stating that central banks may need to increase inflation targets and there may be a call of new fiscal policies, in order to boost US interest rates.

Key quotes:

"Central banks and governments around the world must be able to adapt policy to changing economic circumstances. The time has come to critically reassess prevailing policy frameworks and consider adjustments to handle new challenges, specifically those related to a low natural real rate of interest."

"While price level or nominal GDP targeting by monetary authorities are options, fiscal and other policies must also take on some of the burden to help sustain economic growth and stability."

"In the wake of the global financial crisis, monetary policy has continued to evolve, in this latest incarnation battling low inflation and stagnation via unconventional monetary policy actions like quantitative easing and near-zero or even negative interest rates."

"Although targeting a low inflation rate generally has been successful at taming inflation in the past, it is not as well-suited for a low r-star era."

"There is simply not enough room for central banks to cut interest rates in response to an economic downturn when both natural rates and inflation are very low."