Fed’s Williams says more rate hikes are needed, anticipates higher unemployment

New York Federal Reserve (Fed) Chairman John Williams said on Monday that the US central bank still has to do more to reduce inflation, also noting that he expects to see a notable rise in unemployment as a result. of the path of monetary policy.

“Inflation is too high, and persistently high inflation undermines our economy’s ability to perform to its full potentialWilliams said, noting that there have been signs of progress, but adding that more action by the Federal Reserve will be needed to bring inflation back to the central bank’s target.

“Further tightening of monetary policy should help restore the balance between demand and supply and return inflation to 2% in the coming years”Williams said in remarks prepared for a virtual meeting of the Economics Club of New York.

“The tightening of monetary policy has begun to cool demand and reduce inflationary pressures”, said, adding that “It will take some time, but I am fully confident that we will return to a sustained period of price stability.”

Williams is also vice chair of the Federal Open Market Committee, which sets interest rates. The next central bank monetary policy meeting is scheduled for December 13-14.

The US Federal Reserve is expected to raise its interest rate again, currently between 3.75% and 4%, in order to reduce the highest inflation levels of the last four decades.

The Fed has increased the cost of short-term borrowing very aggressively this year and since the summer has moved in historically large 75 basis point hikes, versus the more frequent quarter of a percentage point.

But Fed officials have signaled, both at the central bank’s November meeting and in comments since then, that they may find room to slow the pace of hikes as they near a resting point for their rate increase campaign.

Williams did not indicate his preferences for the size of the Fed’s next move or hint at how far he thinks the central bank will have to raise rates over time, but he is expected to answer questions from the public and the media. communication after your formal comments on Monday.

He also noted that unemployment is going to rise even if the economy doesn’t fall into recession.

Unemployment up to 5%

John Williams assured that the unemployment rate in the United States in 2023 could rise from the current 3.7% to 5% as a result of the interest rate hikes decreed by the Fed to reduce inflation.

“We are already seeing some of the effects of tighter monetary policyWilliams said in his speech.

In his speech, the state head of the US central bank pointed out that the economy will weaken more than what the Fed had anticipated and pointed out that the US GDP will increase “modestly” next year.

Two months ago, the US central bank had estimated that the unemployment rate would exceed 4.4%.

He also addressed inflation, which in June stood at 9.1%, its highest figure in four decades, and which the Fed is trying to control by raising interest rates.

After standing at 7.7% in October, Williams noted that inflation could drop to 5.5-5% by the end of the year and continue down to 3-3.5% in 2023.

However, he warned that reaching the Fed’s 2% target would take longer.

For Williams, the demand for labor and services, which make up the main segment of the economy, is still too strong and continues to keep upward pressure on inflation.

With information from Reuters and EFE