The New York Fed’s Williams warns there is “a long way to go” before interest rates are high enough

New York Federal Reserve Chairman John Williams said on Thursday that interest rates must continue to rise and remain high to quell stubbornly high inflation.

“It will depend on how the economy and inflation play out over the next year, but I definitely see we have more work to do,” Williams said during an interview with FOX Business’ Edward Lawrence. “We still have ways to go beyond what we will be doing at our upcoming meeting this month to get to that sufficiently restrictive stance. Exactly what that means will depend on the data.”

The Fed has been raising interest rates at the most aggressive pace since the 1980s in a bid to contain inflation, which is still near a 40-year high. Officials have already approved six consecutive hikes, including four consecutive hikes of 75 basis points, lifting the federal funds rate to a range of 3.75% to 4%.

They are widely expected to approve a 50 basis point rate hike at their next meeting on December 13-14, pushing rates further into restrictive territory.

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Federal Reserve Chairman Jerome Powell, from right, Lael Brainard, Vice Chair of the Board of Governors for the Federal Reserve System, and John Williams, President and Chief Executive Officer of the Federal Reserve Bank of New York, Durin (Photographer: David Paul Morris/Bloomberg via Getty Images/Getty Images)

Policymakers are also set to release their first quarterly forecasts since September, providing a glimpse of where the US economy will be headed over the next few years.

Williams said inflation could remain elevated into 2025, although he expects consumer prices to fall “quite significantly” in 2023 as supply chain disruptions continue to ease.

“It will take a couple of years to fully reach the Fed’s 2% target,” he said. Inflation using the Fed’s preferred measurement, the Personal Consumption Expenditure Price Index, 6% up October from the year before, according to new data released on Thursday.

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“We’re seeing some forward-looking indicators that inflation is turning,” he said. “We are moving with a lower inflation trend now and into next year.”

The New York Fed chair’s comments came a day later Chairman Jerome Powell signaled that the US Federal Reserve would slow rate hikes at next month’s meeting, but stressed that policymakers still need to do more to contain stubbornly high inflation.

US Federal Reserve Chairman Jerome Powell

Federal Reserve Chairman Jerome Powell speaks during a news conference on interest rates, the economy and monetary policy action at the Federal Reserve Building in Washington, DC June 15, 2022. (Photo by Olivier Douliery/AFP via Getty Images/Getty Images)

“The time to slow the rate hikes could come as early as the December meeting,” Powell said Wednesday during a speech at the Brookings Institute in Washington, DC. “Given our progress in tightening policy, the timing of this moderation is much less important than how far we need to raise interest rates to control inflation and how long it will be necessary to maintain monetary policy at a tightening level.” to keep the level.”

Still, he noted that “ongoing hikes will be appropriate,” stressing that the focus on the pace of rate hikes is less important than how long rates should be kept in a hawkish range.

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A majority of traders expect the Fed to agree to a smaller half-point rate hike at the end of the December two-day central bank meeting, with just 20% forecasting another 75 basis-point hike.

Smaller rate hikes will give the Fed more time to consider how delayed monetary tightening affects the economy.

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