Monetary policy is affecting different prices at different speeds, NY Fed head says
Rob Kim
The Federal Reserve has tightened monetary policy quickly to align demand with supply and bring inflation down, New York Fed President John C. Williams said in a speech on Thursday.
The effects of the Fed’s actions, though, are showing up in prices at different speeds. For example, the prices of commodities have already declined and those of many other goods have started to plateau or decline, said.
The prices of non-energy services though is “one gear that is moving at a far slower pace,” Williams said in a speech to the Fixed Income Analysts Society in New York City. “The ongoing imbalance between supply and demand in this sector continues to contribute to inflationary pressures.”
The good news is that recent data for newly-signed leases indicates that inflationary pressure in that sector is also starting to subside. “That said, inflation for other services besides shelter has remained high,” he said.
“With inflation still high and indications of continued supply-demand imbalances, it is clear monetary policy still has more work to do to bring inflation down to our 2% goal on a sustained basis,” Williams said. That signals the the Federal Open Market Committee is not even considering pausing its rate hikes yet.
He repeated the FOMC’s statement from its December meeting that ongoing increases in the federal funds rate target range “will be appropriate”.
He warned that the actions taken to bring down inflation “is likely to require a period of below-trend growth and some softening of labor market conditions.”
Williams expects that real GDP growth will only be about 1% this year and the unemployment rate will rise to about 4.5% over the next year from its current rate of 3.5%.
Inflation should decline to about 3% this year, and he expects overall inflation to finally hit 2% “in the next few years.”
Fed Vice Chair Lael Brainard said earlier on Thursday that it’s still possible that inflation could subside without a significant loss of employment.
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