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Fed's Williams: Pace of rate increases depends on how economy responds

Economy Apr 02, 2022 03:30PM ET
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© Reuters. FILE PHOTO: John Williams, chief executive officer of the Federal Reserve Bank of New York, speaks at an event in New York, U.S., November 6, 2019. REUTERS/Carlo Allegri/File Photo

By Howard Schneider

PRINCETON, N.J. (Reuters) -The Federal Reserve needs to move monetary policy towards a more neutral stance, but the pace at which it tightens credit will depend on how the economy reacts, New York Fed President John Williams said Saturday.

Williams, in response to questions at a symposium about whether the Fed needed to hasten its return to a neutral policy rate that neither encourages or discourages spending, noted that in 2019 with rates set near the neutral level "the economic expansion started to slow," and the Fed resorted to rate cuts.

"We need to get closer to neutral but we need to watch the whole way," Williams said. "There is no question that is the direction we are moving. Exactly how quickly we do that depends on the circumstances.”

Williams' remarks suggest a more cautious approach to coming rate increases than has been pushed by colleagues who feel the Fed should race towards a more neutral stance by using larger than usual half-point rate hikes at upcoming meetings.

The median policymaker estimate of the neutral rate is 2.4%, a level that traders currently feel the central bank will hit by the end of this year. Such a pace would require half point increases at 2 of the Fed's remaining six meetings this year, with expectations of a first coming at the Fed's May 3-4 session.

The Fed raised interest rates last month by a quarter of a percentage point, the beginning of what policymakers expect to be "ongoing increases" aimed to tame inflation currently running at triple the Fed's 2% target.

At the last Fed meeting the median policymaker projected quarter-point increases only at each meeting, but several since then have said they were prepared to move more aggressively if needed.

The outcome depends on whether inflation eases, Williams said.

"We expect inflation to come down but if it does not….we will have to respond. My hope right now is that won't happen,” Williams said.

The Fed will also be using a second tool to tighten credit when it starts to reduce the size of its nearly $9 trillion balance sheet. Williams said that could begin as soon as May.

In prepared remarks to a Princeton University symposium Williams said high inflation was currently the Fed's "greatest challenge," and is potentially being driven higher by the war in Ukraine, the ongoing pandemic, and continued labor and supply shortages in the United States.

"Uncertainty about the economic outlook remains extraordinarily high, and risks to the inflation outlook are particularly acute," Williams said.

However, he said he expected the combination of rate increases and balance sheet reduction to help ease inflation to around 4% this year, and "close to our 2 percent longer-run goal in 2024" while keeping the economy on track.

"These actions should enable us to manage the proverbial soft landing in a way that maintains a sustained strong economy and labor market," Williams said. "Both are well positioned to withstand tighter monetary policy."

Fed's Williams: Pace of rate increases depends on how economy responds
 

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Comments (11)
Joe Trader
Joe Trader Apr 02, 2022 9:29PM ET
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This inflation can be easily tamed if G7 leaders work together more ‘maturely’
David Beckham
David Beckham Apr 02, 2022 9:29PM ET
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You are right if all countries stop focus on politics and work together everything could be solved
Mohammed Alariqi
Mohammed Alariqi Apr 02, 2022 7:17PM ET
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I am fine
William Bailey
William Bailey Apr 02, 2022 5:39PM ET
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Translation: dherbgf ffhefvbh fartvgffh
Gus McCrae
Gus McCrae Apr 02, 2022 5:39PM ET
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it's a good translation ****I offer an alternative I find more accurate: I don't give a sit about you as long as I can keep my well paid well regarded job
Gus McCrae
Gus McCrae Apr 02, 2022 5:39PM ET
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Jose Cabreja
Jose Cabreja Apr 02, 2022 4:50PM ET
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The FED is inflation..just reduce/ Balance sheet n watch da Market 🩸🩸🩸
Samer Diab
Samer Diab Apr 02, 2022 3:39PM ET
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my take: now that the 10 year 2 year inverted fed will turn doing making stocks reach all time highs attracting people based on fomo. then the 10 year 3 months yield curve inverts followed by a recession and crash
Samer Diab
Samer Diab Apr 02, 2022 3:39PM ET
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turn dovish i mean
Aazam Khan
Aazam Khan Apr 02, 2022 3:35PM ET
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Synptoms are not good. Recession is on the card for sure. No one can save it. Soft landing is impossible. Bubble burst and recession is very much possible due to high uncertainty. Situation is out of hand and out of control completely
Nick Leeds
Nick Leeds Apr 02, 2022 3:35PM ET
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why is it impossible, again mid - late 1990s 4% GDP growth with 2-3% inflation
David Beckham
David Beckham Apr 02, 2022 2:33PM ET
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It’s easy to solve inflation. All this problem comes from politicians not from fed and economy. As long as all countries work together then there will be no inflation.
FOX MAN
Foxman Apr 02, 2022 2:33PM ET
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Its 100% caused by the Fed
Chris Mack
Chris Mack Apr 02, 2022 2:33PM ET
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Just like Foxman said.
Joe Trader
Joe Trader Apr 02, 2022 2:33PM ET
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You are right. This inflation can’t sustain if the G7 leaders work together
David Beckham
David Beckham Apr 02, 2022 2:31PM ET
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Hard for me to think about recession right now. I’m. Or fan of America but I think the economy is strong and people spend money. Just because of the yield curve so people predict recession? Inflation is a big problem but today is not 1930.
taylor jason
taylor jason Apr 02, 2022 2:31PM ET
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yield curve inversion has been a leading indicator of recessions with a 100% hit rate since 1955. further purchasing power is being eroded away since saving rate + wage growth is not matching inflation. that couple with debt levels being at a multi decade high doesn't with the average American having little savings could prove to be extremely consequential
David Beckham
David Beckham Apr 02, 2022 2:31PM ET
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Yeah every recession is followed by yield curve inverted but there a lot of time there are yield curve inverted is followed by recession . I’m agree inflation hurt people especially Americans since not too much saving but please think about what is the real problem of inflation. Americans are lucky since usd is the major currency in the world so you guys can keep printing money for the last 15 years. But why there was no inflation ? It be use economic gobalizaion
FOX MAN
Foxman Apr 02, 2022 2:31PM ET
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Recession is guaranteed
Samer Diab
Samer Diab Apr 02, 2022 2:31PM ET
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not until the 10 year 3 months inverts. it is a better indicator and nobody seems to talk about it.
Nick Leeds
Nick Leeds Apr 02, 2022 2:31PM ET
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people are 'spending money' on either credit cards or now Things like lease to own, or pay 25% of the items price every two weeks....
rajesh patil
rajesh patil Apr 02, 2022 2:23PM ET
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what exactly it means.DJ up or down
jason xx
jason xx Apr 02, 2022 2:23PM ET
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down
rajesh patil
rajesh patil Apr 02, 2022 2:23PM ET
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on Monday or May
jason xx
jason xx Apr 02, 2022 1:32PM ET
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I swear the media just wants everyone in a panic. People are selling things because they are afraid of a recession that prob won't even happen 2 years from now Insanity
 
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