The Federal Reserve has set interest rates where they need to be to lower prices. John Williams, president of the New York Federal Reserve, said this Thursday.
Williams said that he thinks inflation will “resume moderating in the second half of this year” in a major speech at the Economic Club of New York.
Prices have stayed high for four months in a row, but Williams said this wasn’t the start of a trend.
“In general, I think that some of the most recent inflation readings are mostly a return to the unusually low readings of the second half of last year, rather than a break in the overall downward trend of inflation,” Williams said.
He thought that the personal-consumption-expenditure price index, which is the Fed’s favourite measure of inflation, would slow down to about 2.5% by the end of this year and get closer to 2% next year. Last time we looked, inflation was 2.7% per year in March. The government will make the PCE index for April public on Friday.
Williams is a close friend of Jerome Powell, the head of the Federal Reserve, and the Fed believes what he says.
This is just before the Fed goes into a blackout period to get ready for its policy meeting on June 11 and 12.
A lot of economists think that the Fed’s policy rate will stay the same at the meeting. Many people don’t think there will be a move until December, even though most people think the first chance of a rate cut will be in September.
There is more talk now than ever that the central bank might need to raise rates again.
Since July of last year, the Fed has kept the cash rate between 5.25% and 5.5%.
Williams said that rate hikes were not his main prediction in his speech.
“I think that the way monetary policy is set up now is good for continuing the progress we’ve made towards our goals,” he said.
He said there was a lot of proof that the policy is “restrictive,” which means it makes demand go down. A lot of economists don’t agree with this because the stock market and credit spreads aren’t really tight right now.
Williams said, “I don’t feel any urgency” to lower rates. He also said that a strict policy would no longer be needed at some point.
The minutes from the Fed’s meeting in May show that some officials aren’t sure how tight policy really is right now because inflation is so high. Several Fed officials said they would raise rates again if they had to.
