MNI: Fed's Williams: 'Some Way To Go' To Rebalance Economy

Fed tightening is working its way through the economy with varying lags and there's still "some way to go" to restore a balance of supply and demand, Federal Reserve Bank of New York President John Williams said Tuesday.

GDP growth is expected to come in around 1% this year while the unemployment rate will likely edge up to between 4% and 4.5% from the current half-century low of 3.4% as the Fed pushes rates higher, he said. PCE inflation should fall to 3% this year and back to target over the next few years, he said.

"We need all the gears turning at the right pace to restore balance between demand and supply in the entire economy. We still have some way to go to achieve that goal. And it will likely entail a period of subdued growth and some softening of labor market conditions," Williams said in remarks prepared for the New York Bankers Association.

His unemployment rate prediction is now on the very low of the range of expectations among FOMC officials in December, coming after a blowout January jobs report. "The labor market remains "extremely tight," Williams said. (See MNI: Fed's Peak Rate Looking Perkier As Jobs Boom-Ex-Officials)

INFLATION GEARS

While commodities and other goods prices have come down, the resiliency of Europe's economy and the Chinese rebound after the end of its zero-Covid policies "may throw sand in this gear going forward," Williams said.

Meanwhile, the gear representing non-energy services "will take the longest to rotate at the right pace for low and stable inflation," he said. Overall rent inflation should slow this year, but non-energy services excluding housing has been stuck at about 3.75% over the past six months.

"I am confident that the gears of monetary policy will continue to move in a way that will bring inflation down to 2%. We will we stay the course until our job is done," he said.