Fed’s Williams Says Rates Will Stay High for a While
Market expectations for rate cuts appear incorrect, says New York Fed president
Federal Reserve Bank of New York President John Williams said Tuesday that the U.S. central bank will need to push its short-term interest-rate target to a point where it will restrain the economy and maintain that stance for a while as part of its bid to lower inflation.
“Our focus is on getting inflation back down to 2%” and the current level of price pressures is “far too high,” Mr. Williams said at a Wall Street Journal event.
To get inflation down in an economy with strong labor markets and continued forward momentum, Mr. Williams said the central bank will very likely need to take monetary policy into an area where it holds back economic activity. That could bring the central bank’s interest-rate target range above 3.5%, up from its current range of 2.25% to 2.5%.
Mr. Williams didn’t comment about the size of the rate rise he would like to see at the Fed’s policy meeting next month, but he pushed back on the idea the central bank might soon be able to reverse course and lower rates.
“We’re going to need to have restrictive policy for some time; this is not something that we’re going to do for a very short period of time and then change course,” he said. “We’ll continue through next year” with a restrictive policy stance and “it’s going to take some time before I would expect to see adjustments of rates downward.”
Mr. Williams spoke in an interview that was streamed on WSJ.com. The central banker serves as vice chairman of the rate-setting Federal Open Market Committee and is a highly influential voice on economic and monetary-policy issues.
His comments Tuesday were the New York Fed leader’s first public remarks since the Kansas City Fed’s annual Jackson Hole, Wyo., research conference. At that event, Fed leader Jerome Powell said the central bank must lower high levels of inflation and warned that the effort could bring pain to the economy.
The Fed has raised rates aggressively this year to combat high price pressures and at its June and July policy meetings, it raised its federal-funds target rate range by 0.75-percentage-point increments, a historically aggressive action. It is next scheduled to meet Sept. 20-21.
Financial-market participants are debating whether the Fed will deliver another large rate increase next month, or, heartened by recent data showing some signs of moderating inflation pressures, whether it could downshift to a more modest half-percentage-point increase. In television interviews, several regional Fed officials welcomed the turn in the recent price pressure data but said they weren’t ready to say inflation had peaked.
Mr. Powell said Friday that the Fed’s choice when it meets in September “will depend on the totality of the incoming data and the evolving outlook,” adding, “at some point, as the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases.”
Mr. Williams also said a day will come where the Fed may be able to slow the pace of rate rises. “There’s going to be a period in the future, at some point, where you’re adjusting, you know, probably in smaller steps,” he said.
On Tuesday, two other regional Fed officials also weighed in on the monetary-policy outlook. In an essay published on his bank’s website, Atlanta Fed chief Raphael Bostic said, “I don’t think we are done tightening,” and added, “inflation remains too high, and our policy stance will need to move into restrictive territory if inflation is to come down expeditiously.”
But Mr. Bostic also said “incoming data—if they clearly show that inflation has begun slowing—might give us reason to dial back from the hikes of 75 basis points that the Committee implemented in recent meetings.”
Meanwhile, in a speech, Richmond Fed leader Thomas Barkin said, “I don’t expect inflation to come down, immediately or suddenly or even predictably,” adding that it is critical for the Fed to take action to lower price pressures. He also said based on his local business contacts he doesn’t believe the economy is in recession.
The leaders of the Atlanta and Richmond Fed banks currently don’t hold voting roles on the FOMC.