Monetary policy is affecting different prices at different rates, says head of NY Fed
The Federal Reserve has quickly tightened monetary policy to align demand with supply and reduce inflation, New York Fed President John C. Williams said in a speech Thursday.
However, the impact of the Fed’s actions is showing price increases at different rates. For example, commodity prices have fallen and prices of many other commodities have begun to stabilize or fall, he said.
Even so, the price of non-energy services is “a device that is moving at a slower pace,” Williams said in a speech to the Association of Fixed Income Analysts in New York City. a lot of”. “The ongoing supply-demand imbalance in the sector continues to contribute to inflationary pressures.”
The good news is that recent data on newly signed leases suggests that inflationary pressures in that sector are also starting to ease. “That said, inflation for services other than shelters remains high,” he speak.
“With inflation remaining high and signs of continued imbalances between supply and demand, it is clear that monetary policy still has a lot of work to do to bring inflation down to the 2% target on a sustainable basis,” Williams said. That signals that the Federal Open Market Committee hasn’t even considered pausing rate hikes yet.
He echoed the FOMC’s statement from its December meeting that a sustained increase in the target range of the federal funds rate “would be appropriate.”
He warned that actions taken to reduce inflation “are likely to require a period of below-trend growth and some weakening labor market conditions.”
Williams predicts that real GDP growth will be around 1% this year, and the unemployment rate will rise to about 4.5% next year from the current rate of 3.5%.
Inflation will slow to around 3% this year, and he predicts overall inflation will eventually reach 2% “in the next few years”.
Fed Vice President Lael Brainard said earlier on Thursday that there is still a chance inflation will drop without significant job loss.