Fed’s Williams says ‘far too high’ inflation remains his No. 1 concern

Inflation remains “far too high” and the Federal Reserve “must keep moving,” said New York Fed President John Williams on Thursday.

“The monetary policy gear is turning. But it will take time for supply and demand to come back into proper alignment and balance, so we must keep moving,” Williams said in an evening speech to the Fixed Income Analysts Society.

“Although we are seeing some signs that inflation is moderating, it remains far too high, and it is my No. 1 concern going into 2023,” Williams said.

Bringing inflation down is going to require below-trend growth and some softening of labor-market conditions, the New York Fed president said.

The seven interest-rate hikes last year — which pushed the Fed’s benchmark rate from close to zero to a range of 4.25% to 4.5% — are starting to have “the desired effects,” Williams said.

“Broad indicators show that financial conditions have become significantly less supportive of spending. As a result, I expect real GDP growth to be modest this year at around 1%,” he said.

Williams said he expects the unemployment rate to increase from its current level of 3.5% to around 4.5% over the next year.

He said he expects inflation to slow to around a 3% rate this year.

“While services inflation is still a sticking point, I expect overall inflation to come back down to 2% in the next few years as further tightening of monetary policy realigns the balance between demand and supply,” he said.

Williams is always a voter on the Fed’s interest-rate committee, which will next meet Jan. 31-Feb.1.

Stocks
DJIA,
-0.76%

SPX,
-0.76%
closed down on Thursday, while the yield on the 10-year Treasury note
TMUBMUSD10Y,
3.401%
moved up slightly to 3.4% after hitting the lowest level since September.

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