New York Fed President John Williams said more interest rate increases are likely as the Fed works to lower high inflation. Markets broadly expect a quarter-point hike in early December, while officials debate how fast to move.
New York Fed President John Williams said on Thursday that more rate increases are likely as the US central bank seeks to lower high levels of inflation in an otherwise healthy economy. He did not say when he expects the Fed to raise rates again or how far it will go.
Speaking at the UC Berkeley Alumni Salon in New York, Williams described the backdrop this way: "The economy is strong, labor market continues to strengthen, and inflation is persistent." He added that the Fed must take actions over time to bring inflation back to its 2% goal in a timely manner and on a sustained basis.
Markets price a December hike, officials debate the pace
Financial markets broadly expect the Fed to raise its 3.75% to 4% target range by a quarter percentage point at the next Federal Open Market Committee meeting in early December, and to raise rates again in January. The benchmark is the federal funds rate.
However, stronger-than-expected inflation data this week has fueled debate about more aggressive action. Core inflation rose 0.3% in October, a pace Fed Governor Christopher Waller had earlier said would put a 50-basis-point hike on the table for December.
Other officials favor a slower path. Cleveland Fed President Beth Hammack has made a case for a more modest and steady pace of increases to let the economy adjust to higher short-term borrowing costs.
Williams: the Fed cannot lower the price level
Asked about the elevated cost of living that followed the surge in inflation over the last half-decade, Williams said there is little the central bank can do about it. The Fed uses interest rates to affect the rate of change in prices, not their absolute level.
Williams said history shows that trying to reverse the price level creates huge distortions and damage to the economy. He said central banks have decided to keep inflation low without trying to reverse the effects of a war or a pandemic, and that this carries a higher cost of living.
Source: Investing.com (Reuters)
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