During an address at the Economic Club of New York, John Williams, president of the Federal Reserve Bank of New York, expressed his expectation for inflation to “resume moderating in the second half of this year.”
Mr. Williams, a close ally of Federal Reserve Chair Jerome Powell, emphasized that the recent hot monthly readings do not signify an upward trend but rather a pause in the cooling trend of inflation.
He also forecasted that inflation, as measured by the Fed’s favored gauge, the Personal Consumption Expenditures (PCE) price index, will soften to about a rate of 2.5 percent by the end of this year, moving closer to the Fed’s target of 2 percent next year. The latest reading for March showed inflation running at a clip of 2.7 percent.
“Inflation is still above our 2 percent longer-run target. And I’m very focused on ensuring that we achieve both of our dual mandate goals. So what does it mean for monetary policy? Now, it’s important to note the many factors beyond monetary policy influence the economy and financial markets. These include global drivers of supply and demand, as well as factors that are currently affecting the supply side of the U.S. economy,” Mr. Williams said.
This statement comes shortly before the Fed enters a blackout period to prepare for the policy-making meeting of the Federal Open Market Committee (FOMC) on June 11–12. Economists anticipate no change in the Fed’s policy rate at this meeting. The general view suggests the first chance of a rate cut could be in September, with many not expecting a move until December.
Mr. Williams emphasized the current stance of monetary policy as being well-positioned to continue the progress toward achieving the Fed’s objectives. He noted that policy is “restrictive,” putting downward pressure on demand.
“Looking at this broader context of behavior, the economy over the past year provides ample evidence that monetary policy is restrictive in a way that helps achieve our goals,” Mr. Williams said.
“We’re seeing clear and consistent signs that the imbalances between supply and demand in the economy are receding, and we’ve seen a broad-based decline in inflation. Overall, the risks to achieving our maximum employment and price stability goals have moved toward better balance over the past year. ”
The Fed has kept its policy rate in a range of 5.25–5.5 percent since last July.
Mr. Williams’s remarks underscore the Fed’s commitment to its dual mandate of achieving maximum employment and price stability, suggesting that the central bank is closely monitoring inflation trends and is ready to adjust its policies accordingly.
When questioned about the timing of a reduction in the Federal Reserve’s interest rates, the respondent expressed uncertainty, stating, “The honest answer is I don’t know, because it’s gonna be driven by the data.” This response followed a lighthearted exchange, after telling the interviewer “I knew you were gonna ask” and eliciting laughter from the room.
“We’re seeing the imbalances come down, in the inflation data, [it had] been a little bumpy earlier on, but have to watch how that proceeds. So it’s really about looking at the totality of the data, getting that greater confidence that we’re moving sustainably to 2 percent,” Mr. Williams said.
Steve Beaman, CEO of Elevare Technologies and a former economic consultant for the Fortune 500, told The Epoch Times that the challenge the Fed has is that the only way for them to quelch inflation is to raise interest.
“The problem is—because we’re in what you might call a monetary inflation—if they raise interest rates, it raises the cost of debt to the U.S. government which causes further monetizing of our national expenses. We are now borrowing money to pay the interest on our debt. And as we continue to raise rates, we have to borrow more money which puts more inflationary pressure on the currency. So, the Fed is in a really difficult position because of the fiscal behavior of the government,” Mr. Beaman said.
