NEW YORK–The need to combat high inflation is likely to require lifting the central bank’s benchmark short-term interest rate above 3.5% and then holding it at that level through next year, according to Federal Reserve Bank of New York President John Williams.
“Our focus is on getting inflation back down to 2%,” and the current level of price pressures is “far too high,” Williams told The Wall Street Journal.
To reduce inflation as the labor market remains strong, Williams told the Journal the Fed will very likely need to raise rates high enough to slow economic activity, meaning interest rates will need to rise above the inflation rate, which he said he expects to fall to between 2.5% and 3% next year, the Journal said.
“We’re still quite a ways from that, and to me, that’s one of the benchmarks,” Williams said in an interview. “We need to get the interest rate, relative to where inflation is expected to be over the next year, into a positive space and probably even higher.”
Challenge to 1 Suggestion
According to the Journal, Williams didn’t push back on market expectations that the Fed would opt for a larger move, but he “challenged the idea the central bank might soon be able to reverse course and cut rates.”
“We’re going to need to have restrictive policy for some time; this is not something that we’re going to do for a very short period of time and then change course,” Williams told the Journal. “We’ll continue through next year” with a restrictive policy stance, he said. “It’s going to take some time before I would expect to see adjustments of rates downward.”