MNI: Fed’s Williams-Long-Run Inflation Expectations Anchored

Longer-run U.S. inflation expectations haven't reacted strongly to the spike in inflation to near 40-year highs although uncertainty about the future track of prices has risen significantly, New York Fed President John Williams said.

“The news is mostly good—longer-run inflation expectations in the United States have remained remarkably stable at levels broadly consistent with the FOMC’s longer-run goal,” he said in prepared remarks to a BIS conference on Wednesday.

“Inflation uncertainty has increased, but this does not appear to be due to unmoored longer-run expectations. The one surprising wrinkle worth further study is the increasing divergence in views about future inflation, including the high share of those expecting deflation, and what this portends for the future,” he said.

The Fed has been raising interest rates sharply to make sure anchored inflation expectations remain that way. The FOMC raised the federal funds rate last week by 75 basis points for the fourth straight meeting, bringing it to a 3.75% to 4% range.

"In contrast to longer-run expectations, short-run and, to a lesser extent, medium-run inflation expectations responded to the sharp rise in inflation," Williams said.

Former Richmond Fed research director told MNI's FedSpeak podcast last week the U.S. central bank needs to make sure inflation adjusted interest rates rise to positive levels before it can begin to take its foot off the monetary brakes.