MNI BRIEF: Fed's Williams- AIT Won't Cause Sharp Rate Reversal

New York Fed President John Williams said Monday theoretical models suggest the central bank's average inflation targeting framework should not induce a sharp rise in interest rates to counter inflation.

In a high-level theoretical overview of average inflation targeting, Williams said there is "no predictable pattern of sharp reversals or large overshooting of policy rates relative to neutral, either for static or dynamic AIT policies." Williams, speaking at a Bank of Israel/Centre for Economic Policy Research conference, said the rebound to the neutral rate may be larger under average inflation targeting but it should be gradual.

Some ex-officials, including former New York President William Dudley, have said the central bank may need eventually to raise interest rates sharply above neutral to prevent inflation from continuing to climb.