MNI: Williams Confident Fed On Path To Restore Price Stability

Federal Reserve Bank of New York President John Williams Tuesday suggested the FOMC has raised interest rates enough to return inflation to target in a couple years, softening language from prior speeches that the Fed still had to tighten to attain a sufficiently restrictive stance.

"I am confident we are on the path to restoring price stability," he said in prepared remarks. "Because of the lag between policy actions and their effects, it will take time for the FOMC’s actions to restore balance to the economy and return inflation to our 2 percent target."

Last week, the FOMC raised the target range for the federal funds rate to 5% to 5.25%, its tenth consecutive rate increase. Williams, however, pointed to the Fed's post-meeting statement indicating the Fed still has to determine the "extent to which additional policy firming may be appropriate."

"I will be particularly focused on assessing the evolution of credit conditions and their effects on the outlook for growth, employment, and inflation," said Williams, vice chair of the FOMC.

(See: MNI INTERVIEW: Fed Likely Done, Cuts Possible Before Year-End)

BALANCE

The New York Fed chief noted that while demand for labor has gradually cooled it continues to exceed supply. Williams pointed to monthly job gains averaging about 220,000 over the past three months as other indicators have show that labor demand is gradually slowing.

"We are also seeing improvements on the supply side of the labor market," he said, noting a rebound in labor force participation, with the 25-to 54-year old age group slightly above pre-pandemic levels.

"Achieving balance on the inflation side of our mandate has been more challenging," he told the Economic Club of New York. "Inflation remains too high, and high inflation is hardest on those who can least afford to pay higher prices for food, shelter, and transportation."

PCE inflation has moderated to 4.2%, in large part due to a decline in energy prices, he said. "That’s much better than 7%, but still more than double our longer-run goal of 2%."

Williams continues to see inflation declining to around 3.25% this year, before returning to the Fed's longer run goal of 2% over the next two years. He anticipate slow growth will continue to cool the labor market, with unemployment gradually rising to about 4% to 4.5% over the next year.