John Williams, the New York Fed president who serves as the Federal Reserve's number three official and holds a permanent vote on policy, said U.S. inflation remains elevated and policymakers must take further steps to curb price pressures, according to a report.
"Inflation is simply too high, and even the latest data show it running well above target," Williams said Thursday evening at an event in New York. "We need to roll out policy gradually to make sure inflation can come back down to our 2% goal in a timely and sustainable way." At the same time, he said the Fed must "avoid unnecessary damage to the full employment goal." Williams added that, on the whole, the economy does not appear to be out of balance.
After raising rates in September for the first time in three years, the Fed held policy steady last month to wait for clearer economic data. Since then, officials have signaled broad agreement that rates need to rise to address stubborn inflation, though they disagree on the pace of increases.
Some officials, such as Philadelphia Fed President Anna Paulson, said this week that "continuing gradual tightening is appropriate." But Fed Governor Christopher Waller opened the door to a large 50-basis-point hike as early as next month, provided October inflation data came in hotter than expected, and data released shortly after his remarks did exactly that.
Clear data signals
Williams said the Fed agreed in September to assess incoming data to "understand more clearly what is happening" before deciding on policy at its next meeting. "We will keep following that same assessment process," he said. "I think the data are sending us a very clear signal: the economy is strong, the labor market keeps strengthening, and inflation is sticky," he said. "We still have a lot of work to do to get monetary policy to the right place."
The inflation report released Tuesday showed that core consumer prices, which exclude food and energy costs, rose 0.3% in October from the previous month, the third straight month above expectations. Chicago Fed President Austan Goolsbee called the figures "almost unsettling." Interest rate futures now show investors expect quarter-point hikes at each of the next three meetings in December, January and March.
Labor market
Williams is a centrist on the Fed's policy committee, and his remarks on the economy and policy are closely watched. With Fed Chair Kevin Warsh reducing his public comments on the economy and the likely path of rates, Williams' speeches occasionally move financial markets.
"The U.S. economy is not only continuing to grow, its momentum is strengthening," the New York Fed president said. "We see that in the labor market too. But we do not see signs of the economy overheating or becoming unbalanced in some way." Data last week showed U.S. job growth surged in October and the unemployment rate unexpectedly fell to 4.1%. Overall private-sector job growth was the strongest since March.
Turning to concerns about the scale of U.S. government borrowing, Williams offered an upbeat view during a panel discussion Thursday. "This is not an economic problem for the United States," he said, noting that other countries are also grappling with fiscal worries, including France, which has been hit by unrest. "We are growing faster than almost every country, and we have this AI boom ahead of us — I expect high and steady growth for the next decade — so we have the economic means to deal with the fiscal situation we inherited."
"We just need the political will to solve it," Williams said. "That is what gives me hope." Still, the New York Fed president said that in the near term, the foundations of that economic strength "may be more fragile. If there is a significant slowdown, or if enthusiasm about AI changes, we could see some kind of pullback."
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