The chairman of the New York Federal Reserve expects inflation to slow to around 3% by the end of 2022.
The solidity of the American economy and the high level of inflation should justify a rise in key rates in March, according to an official of the American central bank (Fed), who forecasts a slowdown in inflation around 3% at the end of 2022.
“I expect it to be opportune to raise the policy rate range at our next meeting in March,” Fed New York Branch Chairman John Williams said Friday. an online conference with the University of New Jersey City.
Rates have been in a range of 0 to 0.25% for nearly two years. They had been abruptly lowered in March 2020, in the face of the imminence in the United States of the threat linked to COVID-19.
“With the strength of the current economy and inflation well above our long-term target of 2%, it is time to begin the process of returning (rates) to more normal levels,” he said. underline.
Inflation hit 5.8% in 2021, according to the PCE index which is favored by the Fed, the highest since 1982. Core inflation, which excludes volatile energy and fuel prices food, amounted to 4.9%.
Faced with this, the Fed wants to raise its rates.
Then, “the next step will be to begin the process of reducing (…) our holdings of Treasury bills and MBS (financial products backed by mortgage loans, editor’s note), which had increased considerably following the purchases which started in March 2020”, detailed the manager.
In other words, start to reduce the balance sheet, inflated by two years of asset purchases.
“Assuming the economy develops roughly as expected, I expect this process to begin later this year,” Williams said.
This Fed official is optimistic about a slowdown in inflation, and expects that, by the end of 2022, “PCE price inflation will return to around 3%, before falling further the year next time as supply issues continue to ease.
He also expects “GDP growth of just under 3% this year” and an unemployment rate “around 3.5%” at the end of 2022.