Federal Reserve Bank of New York President John Williams sees the need to keep US monetary policy restrictive for some time and said interest-rate cuts may be warranted next year if inflation slows.
“Monetary policy is in a good place — we’ve got the policy where we need to be,” Williams said in an August 2 interview with the New York Times that was published yesterday. “Whether we need to adjust it in terms of that peak rate — but also how long we need to keep a restrictive stance — is going to depend on the data.”
“I expect that we will need to keep a restrictive stance for some time,” he said, according to the Times.
The Fed’s July rate hike brought the benchmark federal funds rate to a target range of 5.25% to 5.5%, the highest level in 22 years.
The median of Fed officials’ most recent quarterly projections, published in June, showed two more rate increases this year, the first of which was accomplished with last month’s hike.
The need for more rate hikes is “an open question,” Williams told the Times. And if the inflation rate keeps falling, the central bank may need to lower interest rates in 2024 or 2025 to ensure that real interest rates don’t rise further.
As key US inflation measures cool and the Fed maintains rates at current levels, real rates increase, which “won’t be consistent with our goals,” Williams said.
In his outlook, inflation returns to the central bank’s goal of 2% over the next two years and the economy comes into better balance. “Eventually, monetary policy will need over the next few years to get back to a more normal — whatever that normal is — a more normal setting of policy,” Williams said, according to the Times.
Meanwhile Federal Reserve Governor Michelle Bowman reiterated her view that the US central bank may need to raise rates further in order to fully restore price stability.
“I supported raising the federal funds rate at our July meeting, and I expect that additional increases will likely be needed to lower inflation to the FOMC’s goal,” Bowman said, referring to the Federal Open Market Committee in remarks prepared for a central bank Fed Listens event in Atlanta.
She added that further moves will depend on the incoming economic data, repeating her view made to the Kansas Bankers Association in Colorado on Saturday.
“I will be looking for evidence that inflation is on a consistent and meaningful downward path as I consider whether further increases in the federal funds rate will be needed, and how long the federal funds rate will need to remain at a sufficiently restrictive level,” she said.
The Fed’s July rate hike brought the federal funds rate to a range of 5.25% to 5.5%, the highest level in 22 years. The median estimate of Fed officials’ most recent quarterly projections, published in June, showed two more rate increases this year, the first of which was accomplished with last month’s hike.
“We have made progress in lowering inflation over the past year, but inflation is still significantly above the FOMC’s 2% target, and the labour market continues to be tight, with job openings still far exceeding the number of available workers,” Bowman said.
On Friday, a Bureau of Labor Statistics report showed nonfarm payrolls increased 187,000 last month — less than forecast — while the unemployment rate unexpectedly dropped to 3.5%, one of the lowest readings in decades.