Federal Reserve Bank of New York President John Williams said the central bank’s big interest rate hike in early May is a good prospect, as part of an effort to aggressively move up short-term rates to combat high inflation. in the form of.
A half percentage-point increase at the May 3-4 rate-setting Federal Open Market Committee meeting is “a very reasonable choice,” Mr Williams said on Bloomberg television on Thursday.
Noting that no decision has yet been taken, Mr Williams said the central bank’s short-term interest rate target range is “too low” in an environment of high inflation. “From a monetary policy perspective, it makes sense for us to move quickly toward more normal levels of the federal-funds rate, and also move on to our balance-sheet reduction plans,” said Mr Williams, who He is also the Vice President of the FOMC.
The central bank official weighed in amid widespread expectations that the US central bank will need to raise rates aggressively as it seeks to bring inflation down to its 2% target. US inflation hit a four-decade high of 8.5 percent in March, compared to the same month a year ago, according to the latest Labor Department data.
In recent days, many of Williams’ Fed colleagues have expressed openness to one or more half-percentage-point rate hikes, which would differ from the Fed’s typical pattern of raising rates in quarter-percentage-point increases. .
Mr Williams said he is not ready to say inflation is peaking, but it could happen soon. He said he sees signs that consumers are starting to change buying patterns back to how they were before the pandemic, which could suggest some relief on price pressures.
Mr Williams also said he believed rate hikes could reduce excessive demand in the economy because some of the things that drive inflation, such as car loans and purchases of long-lasting goods, are categories that carry interest. Responds well to changes in rates.
Mr Williams expressed doubts that a Fed rate hike will send the economy into recession or cause pain.
In a strong momentum economy, “we have a very unique situation with the demand for labor, obviously, much stronger than the supply,” Mr Williams said. The goal of Fed policy will be to reduce excessive demand, which means “I don’t think we have to reduce employment or increase unemployment that much – it’s just foam, if you will, exit the economy on a more sustainable basis.” Come on.”
Mr Williams also said he still believes the federal-funds target rate, which neither stimulates nor restricts growth, is about 2% compared to the current setting of between 0.25% and 0.5%. is between % and 2.5%.
During the rate hike, Mr Williams said the Fed may need to go “slightly up” from the neutral funds rate as part of an effort to calm inflation. “I think the economy can cope with those kinds of short-term” rates as rates continue to rise, he said.