Top Fed Official Signals Support for May Interest-Rate Increase
‘Inflation is still too high,’ says New York Fed President John Williams
A top Federal Reserve official said the central bank had more work ahead to bring down inflation, suggesting another interest-rate increase would be warranted at the Fed’s meeting in two weeks.
“Inflation is still too high, and we will use our monetary policy tools to restore price stability,” said New York Fed President John Williams in a speech Wednesday night to a group of financial-industry professionals in Manhattan.
Investors see a greater than 80% chance that the Fed will raise rates by a quarter point at its May 2-3 meeting, according to CME Group. Mr. Williams, a close ally of Fed Chair Jerome Powell, offered little to push back against those expectations just days before central-bank officials begin their traditional premeeting quiet period when Fed officials don’t communicate publicly before their decision.
Fed policy makers raised rates by a quarter-point at each of their two meetings this year, most recently in March, to a range between 4.75% and 5%. The Fed has been trying to slow investment, spending and hiring to combat inflation.
But officials have signaled greater uncertainty about the rate outlook because of banking-system stress last month, triggered by the closures of two midsize banks experiencing huge outflows of deposits.
Mr. Williams said stresses in the banking system had stabilized, but he said he anticipated they would lead to tighter lending standards for households and businesses, which would in turn reduce consumer spending. He said it was too soon to judge the magnitude and duration of any such tightening.
The New York Fed leader pointed to signs that both demand for labor and inflation were cooling, and he said he expected inflation to decline to around 3.5% this year. The Fed’s preferred inflation gauge, the personal consumption-expenditures price index, climbed 5% in February from a year earlier.
“The thing that makes this very difficult [is that] we’re in an economy that’s very strong,” he said. “So the tightening that might happen in credit conditions—that’s in the context of what is otherwise a very strong economy.”
The Fed’s job is to balance the risks of a sharper slowdown from any lending pullback with the risks of a stronger-than-anticipated growth because of better global economic activity, including in Europe and China, said Mr. Williams. “The uncertainty can go both ways,” he said. “I’ve been surprised by the economic data.”