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New York Federal Reserve President John Williams on Friday said it was “absolutely essential for the economy” to bring inflation back down to the central bank’s 2% longer-run goal, but warned it may be a ‘bumpy road’ to get there.
“We must be resolute, and we cannot fall short,” Williams said, in a speech to students at the University of Puerto Rico.
The Fed raised its benchmark interest rate by 75 basis points in June – the largest increase since 1994. Many Fed officials back an identical move at the central bank’s next meeting in less than three weeks. Williams did not address the question in his prepared remarks.
“With tighter monetary policy in place, supply and demand will be brought back into balance, and inflation will return to our 2% longer-run goal. This may take some time and may well be a bumpy road,” Williams said. The New York Fed president always has a vote at Fed interest-rate committee meeting. Other regional Fed presidents rotate as voting members.
The Fed’s favorite inflation measure, the personal consumption expenditure price index, was running at a 6.3% rate in May, well above the Fed’s 2% target.
Williams did not forecast a recession, but said he did see a significant slowdown in economic growth over the next 18 months.
The economy grew at a rapid 5.7% annual rate in 2021. This year, Williams said, growth will “slow considerably” and real GDP growth might only expand at a rate below 1% before recovering to a 1.5% rate in 2023.
This will move the unemployment rate higher.
While there are some signs that job growth has slowed in recent months, “the labor market remains incredibly tight,” Williams said.
Read: U.S. created greater-than-forecast 372,000 jobs in June
Stocks
DJIA,
SPX,
have moved higher Friday reversing a soft opening. The yield on the 10-year Treasury note
TMUBMUSD10Y,
moved up to 3.06%.
