* Williams says Fed should take pre-emptive measures
* Dollar blips up after NY Fed says Williams commentsacademic
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Hideyuki Sano
TOKYO, July 19 (Reuters) - The dollar was on the defensiveon Friday after Federal Reserve officials bolstered expectationsof an aggressive rate cut this month to address weakening pricepressures.
At a central banking conference on Thursday, New York FedPresident John Williams argued for pre-emptive measures to avoidhaving to deal with too low inflation and interest rates.
Although a New York Fed representative subsequently saidWilliams' comments were academic and not about immediate policydirection, investors still took his remarks along with separatecomments from Fed Vice Chair Richard Clarida as a dovish signalfrom the central bank.
The dollar stood at 107.42 yen, up 0.15% in earlytrade, having hit a three-week low of 107.21 on Thursday whilethe euro also slipped 0.15% to $1.12555 from $1.1282. Onthe week, the dollar is down 0.4% versus the yen and almost flaton the euro.
The dollar index, which hit a two-week low of 96.648,bounced to 96.824.
The greenback fell broadly on Thursday after Williams'remarks bolstered bets that the Fed would cut interest rates by50 basis points, rather than 25 basis points.
Williams said when rates and inflation are low, policymakerscannot afford to keep their "powder dry" and wait for potentialeconomic problems to materialise.
That is especially true with neutral rates that wouldneither restrict nor accelerate the U.S. economy "around half apercent," he said. When adjusted for inflation, the neutral rateis near the Fed's current policy rate, which is in a range of2.25-2.50%.
Financial markets quickly reacted, with money market futurespricing in almost a 70% chance of a 50 basis point cut atits policy meeting on July 30-31 at one point.
The odds eased to around 40% after the New York Fed saidlater that his speech was not about potential actions at theupcoming policy meeting.
Still, Williams' rate-cut view was echoed by Fed Vice ChairClarida, who told Fox Business Network the central bank mighthave to act early and not wait "until things get so bad".
"Williams' comments were surprisingly dovish. The NY Fedwent all the way to try to modify the message but no one seemsto have done so for Clarida, who also said a very similarthing," said Daisuke Uno, chief strategist at Sumitomo MitsuiBank.(Reporting by Hideyuki Sano; Editing by Sam Holmes)