New York Fed President John Williams said on Monday (3rd) that underlying inflation pressures remain high even if there are first signs of a cooling in inflation, and the Federal Reserve has not raised interest rates to a restrictive level. level, there is still a long way to go in the future.
In a speech, Williams said: “Inflation is clearly too high, and continued high inflation undermines the economy’s ability to unleash its potential. While austerity has begun to cool demand and reduce inflationary pressures, our work is not yet there. Finish.”
Williams declined to comment on the next steps for monetary policy, saying only that the central bank would continue to push ahead with actions to cool demand and bring inflation back to its 2 percent target.
Lower economic growth and higher unemployment are likely side effects of the Fed’s fight against inflation, Williams said. He forecasts economic growth to be nearly flat this year and only modest next year, with the unemployment rate expected to rise to 4.5% by the end of next year, up from 3.7% currently.
A broad measure of financial conditions, including borrowing, mortgage rates and stock prices, has been significantly less supportive of spending, Williams explained, leading to a softening housing market and signs of a slowdown in consumer and business spending.
Fed officials expect the policy rate to rise to 4.4% by the end of this year and 4.6% by the end of next year, according to a rate dot plot released last month. The current benchmark interest rate range is 3-3.25%, which means that the November meeting is still likely to raise interest rates by another 3 yards (75 basis points).
Concerns that the Fed’s actions could disrupt financial markets and tip the U.S. economy into recession have some market participants questioning the need to raise interest rates, while others believe the worst of inflation is over and price pressures will dissipate on their own.
In this regard, Williams acknowledged that some items are indeed cooling, such as commodity prices, but this is not enough, because the demand for goods is still high, and the labor market and services are still in short supply, which leads to widespread inflation, which will take a longer period of time. to cool down.
He estimated that the U.S. inflation rate may fall to 3% next year and remain close to the 2% target level in the next few years, emphasizing that the Fed will make every effort to keep inflation down.
“In order to achieve a balance between supply and demand, and thus lower inflation, monetary policy has to work, and the Federal Open Market Committee (FOMC) is taking strong action to that end,” Williams said, adding how quickly and How high interest rates will eventually rise will depend on data and how the economy develops.