MNI: Fed's Williams Sees Risk Of Higher Fed Funds Path

Federal Reserve Bank of New York President John Williams Tuesday said raising the fed funds target range to somewhere between 5% and 5.5% remains reasonable, but there are risks it may need to go even higher due to labor market strength.

"This kind of range of five to five and a half in the year would make sense, but I do think that there are signs the economy's clearly staying stronger than many thought," Williams told reporters after a speech to the New York Bankers Association.

"Clearly there's some risk that inflation stays higher this year," he said. "With the strength in the labor market, clearly there's risks inflation stays higher for longer than expected, or that that you might need to raise rates higher than that."

LOWER UNEMPLOYMENT

Williams confirmed he's lowered his unemployment outlook, seeing the jobless rate rising to 4%-4.5% over the next year.

"The question about are the economic conditions all broadly, not just the labor market, going to be supportive of seeing inflation come down to 2% or not in the next few years? That's still an open question," said Williams, vice chair of the FOMC.

"The more important thing is the underlying trend is a strong economy, very strong demand relative to supply and this kind of underlying measure of inflation is still quite elevated," he said.

Williams said once the Fed reaches a sufficiently restrictive fed funds rate, he is not expecting cuts this year, but if inflation comes down as expected then there would be cuts in 2024 and 2025.