New York Federal Reserve President John Williams has warned that interest rate increases may take some time to have an impact on inflation. Speaking in New York, Williams offered no forecast for policy but claimed that he doesn’t expect inflation to return to the Federal Reserve’s target of 2% for the next two years. The official said that it may take some time for policy actions to take effect and that unemployment levels could rise to between 4% and 4.5%, up from their current 54-year low of 3.4%. During the speech, Williams cited positive signals, including moderation in longer-term inflation expectations and a cooling of demand for labour, which has put upward pressure on wages but are yet to keep up with cost-of-living increases.
The speech followed the Federal Open Market Committee’s vote to raise the benchmark interest rate another quarter percentage point to a target range of 5% to 5.25%. Williams emphasized that it’s “now a matter of what the incoming data say. First of all, we haven’t said we’re done raising rates. We’re going to make sure we achieve our goals and we’re going to assess what’s happening in our economy and make the decision based on that data.” The Fed removed a key phrase from its post-meeting statement which had previously indicated that additional interest rate hikes would be appropriate.
Williams added that he would be focused on the impact of current issues in the banking industry. “I will be particularly focused on assessing the evolution of credit conditions and their effects on the outlook for growth, employment and inflation”, he said. Clogged labour chains, which have substantially impacted inflation, have improved considerably over time, according to Williams.
