A senior Federal Reserve official said the central bank will need to keep monetary policy sufficiently restrictive for a few years to bring down inflation and realign supply and demand in the U.S. economy.
"To me, the important thing is we need a sufficiently restrictive stance, we need to retain a sufficiently restrictive stance of policy, we’re going to need to maintain that for a few years to make sure we get inflation to 2%, then eventually we’ll get interest rates presumably back to more normal levels," New York Fed President John Williams said at The Wall Street Journal’s CFO Network Summit in New York.
Fed officials last week approved lifting the benchmark federal-funds rate by a quarter-percentage point to a range between 4.5% and 4.75%. That was a slower pace than at prior meetings, they raised it by a half point in December and 0.75 point in November.
Mr. Williams said that the quarter-point increase "seems like the right size to adjust policy."
THE FED, BIDEN USING THE '70S INFLATION 'PLAYBOOK' TO SOLVE SUPPLY PROBLEM, MARKET EXPERT SAYS
"I think these 25-basis point steps allow us both to adjust policy based on the new information and what’s going on, and get us to our goal," he said, adding the Fed could move more quickly if the economic picture changes.
According to projections released after their policy meeting in December, most Fed officials thought they would raise the fed-funds rate to 5.1% this year, which would imply quarter-point rate increases at their next two meetings, in March and May. More than a third of officials anticipated lifting the rate above 5.25%, which would call for another increase in June. No officials projected cuts this year.
"If I roll back to think about the December projections… where the vast majority of my colleagues put in the funds rate ending this year between 5% and 5.5%, with quite a few at 5% to 5.25%, and 5.25% to 5.5%, my view is that still seems a very reasonable view of what we’ll need to do this year in order to get supply and demand in balance and bring inflation down," he said.
His comments come a day after Fed Chair Jerome Powell said the labor market’s surprising strength underscores why bringing inflation down will take longer and require higher interest rates than many investors have been anticipating.
