Key facts
- Williams said more interest rate increases are likely as the Fed seeks to lower high inflation.
- Williams did not say when he expects the Fed to raise rates again or how far it will go.
- Markets broadly expect a quarter-point increase at the early December FOMC meeting, then another in January.
- Core inflation rose 0.3% in October, a pace Waller had said would put a 50-basis-point hike on the table for December.
- Cleveland Fed President Beth Hammack has made a case for a more modest and steady pace of increases.
Federal Reserve Bank of New York President John Williams said on November 12 that more interest rate increases are likely as the US central bank seeks to lower high levels of inflation in an otherwise healthy economy. Williams did not say when he expects the Fed to raise rates again or how far it will go with the increases.
"The economy is strong, labor market continues to strengthen, and inflation is persistent," Williams said at the UC Berkeley Alumni Salon held in New York. "We'll need to take actions over time that will ensure that we get inflation back to our 2% goal in a timely manner and on a sustained basis," he said, adding, "We still have work to do … to get monetary policy to the right place."
Financial markets broadly expect the central bank to increase its current 3.75% to 4% federal funds target rate range by a quarter percentage point at the next Federal Open Market Committee meeting in early December, and then to raise rates again in January. There is an active debate about more aggressive action on the part of the Fed after this week's stronger-than-expected inflation data. Core inflation rose 0.3% in October, a pace that Fed Governor Christopher Waller had earlier said would put a 50-basis-point hike on the table for December.
But other Fed officials such as Cleveland Fed President Beth Hammack have made a case for a more modest and steady pace of increases to allow the economy to adjust to the increase in short-term borrowing costs.
Williams was asked about the elevated cost of living that has resulted from the surge in inflation over the last half-decade. He said there is little the central bank can do about it. The central bank uses interest rates to affect the rate of change in prices rather than the absolute level of those prices. That means recent years' inflation has left many in the economy struggling with a much higher overall level of prices.
When it comes to lowering the price level, history shows that trying to "put the genie back in the bottle, that creates huge distortions and damage to the economy," Williams said. Over recent decades, central banks have decided to target keeping inflation low "but not get into this attempt to reverse the effects of a war or the effects of a pandemic, but move forward," Williams said. "There are consequences of that" and it is a "higher cost of living," the official said.