"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. "
What does it really mean? It simply means that the low interest rates will stay for a wile. Why, because interest rate increase will push the stock market into a recession/crash which respectfully push the economy (which is already sluggish) into recession as well.
Stock market has been pumped by cheap FED's money for the past several years. At first, low rates were dedicated to help the economy to recover. Instead the low-rate money were used to recover (bail out) the stock market. It was too easy and too attractive: just get free FED's money, buy stocks, when you are buy and everybody around (institutional traders who has access to cheap funds) are buying, price goes up, you profit and you may return the borrowed money by keeping good profit. Everything looked good and everybody are happy - "Happy time".
At some reasonable point FED would have to stop this "happy time" by suppressing the stream of free money (start increasing the interest rates). However, the taste of free money and taste of fast profit clouded the minds. In 2010 the stock market almost completely recovered, the economy was still in the deep "hole". The FED still had to keep low rates by hoping that free money will not stuck in the financial institutions for their investments needs, but that the money will actually go into the economy.
When money finally got into the economy and we got drop in unemployment, we got recovery in the housing market and etc., then the oil market crashed which pushed the US dollar up and inflation down. Now it became difficult to raise interest rates without hurting the inflation with further implication on the economy. Last year in October-November 2015 Yellen said that the benefit from having low interest rates are equalized by the harm from the low rates. If in 2009 the cheap FED's money were used to recover stock market, now, the financial institution use them to pump the stock market and corporations use the cheap money to buyback stocks instead of investing into growth. Many analysts, by looking back, are telling that 2011-2012 was the best time to start interest rate increase. Of course, anyone could be smart by looking back. Until 2011-2012 the FED's money were used to recover from the 2008 crash. After that time the FED's money were used (beside the economy) to pump the stocks. The longer we have low rates the stronger the market will be pumped, the stronger recession (market crash) we will have when it comes. As Mr. Willams is telling:
"recessions will tend to be longer and deeper, recoveries slower, and the risks of unacceptably low inflation and the ultimate loss of the nominal anchor will be higher"
We saw a quarter of rate increase in December of 2015 and it pushed the stock market into a deep correction. I guess, it got everybody pretty scary. Now, the interest rate increase became clearly associated with a recession. Many realized that interest rate increase may trigger a recession on the stock market and respectfully it will hurt the economy. Now, FED pushed itself into a corner. FED may raise the interest rate now which will cause some recession or at least a deep correction on the stock market or FED continue keeping the rates low and wait for better time. Coming back to Mr. Williams:
"other words, we can wait for the next storm and hope for better outcomes or prepare for them now and be ready"
What if "better time" does not come? FED understands the invisible at this point damage from low rates. Still, there are no plans to increase the rates so far:
"we are seeing the future now and have the opportunity to prepare for the challenges related to persistently low natural real rates of interest."
Everything came in the most unfortunate time. From one side the FED has to increase the rates. From other side it cannot be done without any cost. Even small, one time a quarter rate increase may push the market into a deep correction. Oil does not go up, US dollar stays high and we have coming elections. Everybody remember the lesson of 2008 election during the market crash. Unemployed and financially broken people will not vote for the party in charge during a recession.
We should not worry about any rate increase at least until December 2016. Democratic FED will not risk and it will try to hold the market stable at least until the election results are clear. Until then, already pumped stock market will continue to be further pumped by cheap money.
One may say, they going to pump the market, so what. As long as we know what they are doing and what they plan to do we may use it and profit from the market movements.
P.S. The above is just an opinion (some may consider it to be speculative) based on the personal observations of the events.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.