Inevitable Rate Increases
John Williams, the President of the New York Federal Reserve, has firmly asserted that the central bank's short-term rate target hikes are not over. This statement was made during a recent interview published by the Financial Times.
Achieving a Restrictive Stance
Williams articulated that the Federal Reserve's projections and communications suggest further strides are required to sufficiently limit policy and achieve a 2% inflation rate. He maintained that these changes reflect a commitment to price stability that should occur over several years, rather than a decade or more.
Insights on Future Fed Tightening
Although Williams refrained from specifying the degree of tightening expected from the Federal Reserve, he acknowledged potential increases. Last month, the Fed held its overnight target rate range steady between 5% and 5.25%. Despite this, signals indicate a likely rise of half a percentage point within this year, influenced primarily by strong economic data that is prompting the Fed to consider another rate hike by the end of the month.
Economic Effects of Past Rate Hikes
Speaking about the economic impact of past rate hikes, Williams explained that the full effects of the restrictive policy have yet to materialize, but certain interest-rate-sensitive sectors are beginning to see some impact. He stressed, "We are not getting the full effects of the restrictive policy that we put in place yet."
Job Market Outlook and Balance
In terms of the job market, Williams mentioned an improved balance between supply and demand. He also dismissed the possibility of an impending economic downturn. Emphasizing the strength of the labor market and its growth, Williams saw no signs of weakness in labor force participation rates. However, he observed a gradual slowdown in terms of labor demand.
Economic Forecast and Fed’s Balance Sheet
As for the overall economic outlook, Williams expects slow growth, dismissing any possibility of a recession. The New York Fed President further commented on the Fed's balance sheet run-off process, suggesting its continuation for some time without specifying an end date.