New York Fed's Williams expects inflation to fall 'significantly' next year
As the Federal Reserve attempts to tamp down consumer prices through its aggressive monetary-tightening policy, inflation is set to come down substantially at some point in 2023 , New York Fed President John Williams said at the SUNY Buffalo State campus Friday.
September's Summary of Economic projections showed the median prediction for core PCE inflation, the Fed's preferred inflation gauge, will be 4.5% in 2022, 3.1% in 2023 and 2.3% in 2024. That compares with 4.9% in August, which is well above the Fed's 2% objective.
The central bank has already lifted the benchmark lending rate by 300 basis points for five straight meetings, though the Federal Open Market Committee sees further increases will be needed to tame inflation that's running at a four-decade high. The median FOMC projection sees the fed funds rate peaking at 4.6% by the end of 2023, compared with the current target range of 3.0%-3.25%.
"Inflation is very high and the Fed is a long way from where it needs to be," Williams emphasized in agreement with his colleagues. Fed Governor Christopher Waller, for instance, said recently that the central bank will not pivot from its hawkish monetary policy until inflation comes down to target.
In addition to raising rates further into restrictive territory, the Fed is working on shrinking its balance sheet "at a significant pace,"
Williams said. The balance sheet stood at $8.76T on October 5, down 2% from the peak in April. As part of its quantitative tightening tool, the Fed is currently reducing its balance sheet by $95B a month - twice the pace of the previous three months.
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