(Bloomberg) -- Federal Reserve Bank of New York President John Williams said that while inflation has showed some signs of slowing, a tight labor market and other factors are likely to keep price pressures elevated and warrant high interest rates for some time.
“We have clear signs that demand exceeds supply in our labor market” and broader economy, Williams said Friday during an interview on Bloomberg Television with Kathleen Hays. He expects inflation to slow to the 3% to 3.5% range next year, but “the real issue is how do we get it all the way” to 2%, Williams said.
“We’re going to have to do what’s necessary,” Williams said. “It could be higher than what we’ve written down” if that’s what it takes reduce inflation to the Fed’s 2% goal.
The New York Fed chief spoke two days after Fed officials lifted interest rates by a half percentage point, bringing their benchmark to a target range of 4.25% to 4.5%. New economic projections released by policymakers showed they see rates ending next year at 5.1%, according to their median forecast, before being cut to 4.1% in 2024 — both higher levels than previously indicated.
“To me, the question of how high we have to get to is really going to depend on what we see in inflation and the supply-and-demand imbalance,” he said, while playing down the forecasts of some Fed watchers that rates may need to go to 6% or even 7%.
“That is definitely not my baseline,” Williams said. “I think we have some favorable developments under way – things that we’ve been talking about for a long time,” he added, citing easing supply-chain snarls and softer prices for goods and imports.
“Where inflation is still high is in these core-services areas — the areas that are probably going to be more persistent and really reflect the imbalance between supply and demand in the labor market and the overall economy,” he said.
This week’s rate move marked a downshift by the Fed following four consecutive 75 basis-point hikes that have boosted rates at the fastest pace since the 1980s.
But Chair Jerome Powell made it clear more increases are coming, saying Wednesday that officials still have a “ways to go” before rates are at a level that is sufficiently restrictive to tame inflation running at three times their 2% goal.
(Updates with more Williams comments in third paragraph.)
©2022 Bloomberg L.P.