MNI: Fed's Williams - Restrictive Stance For Quite Some Time

New York Fed President John Williams on Thursday said he expects interest rates tor remain restrictive for "quite some time," but also left open the potential for further hikes if inflation comes in hotter than expected.

"I expect it will be appropriate to maintain a restrictive stance for quite some time to fully restore balance and to bring inflation back to our 2% longer-run goal on a sustained basis," he said according to prepared remarks. "In balancing these risks, and based on what I know now, my assessment is that we are at, or near, the peak level of the target range of the federal funds rate."

Williams said that if price pressures and imbalances persist "more than I expect," then additional policy firming may be needed. "My forecast is that PCE inflation will be around 3% for 2023 as a whole, then decline to around 2.25% next year, before closing in on 2% in 2025." (See: MNI POLICY: Fed Likely Done Hiking, Focused On Length Of Hold)

TWO-SIDED

The New York Fed chief said "risks are two-sided." There is a possibility that inflation remains stubbornly persistent and a risk of a weaker economy and employment, he said. Williams, also the vice chair of the FOMC, said he expects GDP growth to slow next year to about 1.25%, and the unemployment rate to rise to around 4.25%.

Still, Williams said there have been "meaningful improvements" in the supply side of the labor market. "Labor force participation has increased significantly. And immigration rates have returned to pre-pandemic levels. But there are limits to how much supply can increase, and some further reduction in demand is needed to fully return balance to the labor market," he said at a New York Fed event.