MNI: Fed's Williams Warns Broad Inflation Could Prove Sticky

New York Fed President John Williams said on Monday tighter monetary policy has begun to cool demand and reduce inflationary pressures but the job is not yet done, adding lower commodity prices and receding supply-chain issues will not be enough by themselves to bring inflation back to the central bank's 2% inflation target.

Downgrading his view of the outlook, the New York Fed chief said he expects real GDP to be close to flat this year and to grow modestly in 2023 and anticipates the unemployment rate will rise to around 4.5% by the end of 2023 from 3.7% today.

Williams compared inflation to layers of an onion and said cooling global demand and steady improvements in supply chains will result in falling rates of inflation to about 3% next year. "We have seen significant improvement in global supply chains, and I expect this to continue," he said, noting his regional central bank's Global Supply Chain Pressure Index.

UNDERLYING INFLATION

"Bringing down underlying inflation—the inner layer of the inflation onion—will take longer, but with monetary policy helping to restore balance between demand and supply, I see inflation moving close to our 2% goal in the next few years," Williams said. St. Louis Fed economist Mark Wright told MNI it's still too soon to say whether inflation has peaked.

"The fact is, lower commodity prices and receding supply-chain issues will not be enough by themselves to bring inflation back to our 2 percent objective," he said.

"The demand for labor and services is far outstripping available supply. This is resulting in broad-based inflation, which will take longer to bring down," he said in prepared remarks to be delivered to the U.S. Hispanic Chamber of Commerce National Conference. (See: MNI INTERVIEW: Fed May Need Unemployment To Rise To 7% - Ball)