Federal Reserve Bank of New York President John Williams has stated that the U.S. monetary policy is "in a good place" but noted that future decisions on interest rates will be data-dependent. His comments were made during a discussion with Bloomberg TV reporter Michael McKee at Bloomberg LP's headquarters in New York on Thursday.
Williams suggested that the current policy is restrictive and is achieving the desired effects of balancing demand and supply and easing inflation. However, officials need to assess whether the policy is calibrated to ensure sustainable reduction of inflation to their 2% goal. He emphasized the need for continuous monitoring of data and asked, "is this sufficiently restrictive? Do we need to maybe raise rates again?"
The Federal Open Market Committee (FOMC) raised its benchmark rate in July to a range of 5.25% to 5.5%, marking the highest level in 22 years, after holding steady in June. Policymakers are slowing their rate hikes as they approach a potential end to their monetary policy tightening campaign. Investors currently expect the Fed to maintain rates when officials meet on Sept. 19-20.
Last month, Williams suggested that officials were nearing a peak rate and that a primary question was understanding how long they would need to maintain a restrictive policy stance. These views were echoed by Chicago Fed President Austan Goolsbee who stated that the debate is moving from "how high should the rates go" to "how long do we need to keep the rates at this position before we're sure that we're on the path back to the target."
In derivative markets and among most Wall Street economists, there's an expectation that the Fed will keep rates at a range of 5.25%-5.5% at their upcoming meeting on Sept. 19 and 20, and await more data before deciding what to do next. Some economists believe the Fed has concluded its rate hikes, while others anticipate one more increase either in November or December. A smaller group worries that inflation could rekindle in the coming months, potentially compelling the Fed to raise rates to near 6% or higher.
Williams highlighted that surveys indicate American households do not expect high inflation in the future and cited New York Fed research estimating the underlying inflation trend at around a 2.5% rate. He also noted that he expects the unemployment rate to rise above 4% in the coming months from the current rate of 3.8%.
The New York Fed president reiterated that the Fed was not considering changing its 2% annual inflation target. He also stressed the importance of not overreacting to short-term developments, but acknowledged it as one of the risks.
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