Interest rates will remain high for “some time,” according to recent comments made by New York Federal Reserve President John Williams.
“I expect that we will need to maintain a restrictive stance of policy for some time to fully achieve our goals,” said Williams. “It will only be appropriate to dial back the degree of policy restraint when we are confident that inflation is moving toward 2% on a sustained basis.”
Williams spoke yesterday at the Bronx EDC and BICNY’s 2024 Regional Economic Outlook to elaborate on how the Fed’s “monetary policy actions are helping restore price stability.” He went into detail on the Federal Reserve’s mandate, the labor market in the U.S. and New York City, the three layers of inflation, future indicators and monetary policy.
He referred to inflation as an onion with three layers, his “rule of three”: globally traded commodities, core goods (excluding food and energy) and core services inflation. Williams explained that all three layers have seen positive improvements as of late, which has “been quite encouraging.”
Commodities have fallen significantly from their peak, with food price inflation dropping below 2% and energy prices seeing a continuous fall over 2023. Core goods have dropped to near zero, showing supply chain issues are seeing resolutions. Core services have also come down from their peak, which is largely due to rent growth returning to pre-pandemic norms.
“The data indicate that we are clearly moving in the right direction,” said Williams. “However, we still are a ways from our price stability goal.”
While the future is always uncertain, Williams predicts for 2024, and beyond, “GDP growth to slow to about 1.25% this year, and for the unemployment rate to rise to around 4%. I expect PCE inflation to continue to slow to about 2.25% this year, before reaching our 2% longer-run goal next year.”
Read the full speech from Williams here.
