MNI: Fed's Williams: Further Tightening To Bring Stable Prices

Monetary policy still has "more work to do" to tame inflation for good, Federal Reserve Bank of New York President John Williams said Thursday, signaling further interest rate increases are in store this year.

The effects of higher rates are showing up in different parts of the economy at different speeds, and while there are signs that inflation is moderating, it remains far too high, Williams said.

"Bringing inflation down is likely to require a period of below-trend growth and some softening of labor market conditions," he said in remarks prepared for the Fixed Income Analysts Society in New York.

"While services inflation is still a sticking point, I expect overall inflation to come back down to 2% in the next few years as further tightening of monetary policy realigns the balance between demand and supply." (See MNI: Fed Rates Likely Headed Above 5% Despite Cooling CPI)

KEEP MOVING

Cooling global demand and supply chain improvements will put more downward pressure on goods prices and pull down overall inflation to around 3% this year, Williams said.

With tighter financial conditions cramping spending, GDP growth should slow to around 1% this year. The labor market remains "remarkably tight" but the unemployment rate should rise to 4.5% over the next year from the current 50-year low of 3.5%, he said.

An ongoing imbalance of supply and demand for non-energy services is still contributing to inflationary pressures, though shelter cost inflation should start to slow later this year, he said.

"It will take time for supply and demand to come back into proper alignment and balance, so we must keep moving. While the route ahead is still uncertain, I am fully confident we will return to a sustained period of price stability."