The Fed’s “third-in-command”: The goal of controlling inflation is far from successful, and tight monetary policy is still the key
Financial Associated Press, October 4 (Editor Zhao Hao) On Monday (October 3), local time, New York Fed President Williams said that although the United States has shown signs of cooling inflation, underlying price pressures are still too high, and the Federal Reserve Monetary policy must be intensified to keep inflation under control.
“It’s clear that inflation is too high, and this level of inflation undermines our ability to deliver on our economy’s potential,” Williams said. He added, “Tighter monetary policy has started to cool demand and reduce inflationary pressures, but Our work is not done yet.”
He stressed that some categories of commodity prices are already cooling, but not by enough. Demand for both labor and services is outstripping supply, which will lead to widespread inflation that will take a while to lower.
(Source: Official Twitter of the Federal Reserve Bank of New York) Because the president of the Federal Reserve Bank of New York also serves as the vice chairman of the Federal Open Market Committee (FOMC), he has fixed voting rights in monetary decision-making, and is often referred to as the “number three” of the Federal Reserve.
Williams did not reveal his views on the next steps of monetary policy in his speech on Monday. But he has “full confidence” in the FOMC’s strong action and expects inflation to likely slow to 3% next year and gradually approach the central bank’s 2% target over the next few years.
The Fed has raised rates by 300 basis points since March. And a newly released dot plot shows that 19 officials expect the policy interest rate to reach 4.6% by the end of next year, which means that this tightening cycle is 150 basis points away from the end.
Such aggressive actions and forecasts have sparked jitters in financial markets and fears of a recession. Williams acknowledged that lower economic growth and higher unemployment might indeed be a side effect of the central bank’s mandate to fight inflation.
The economy is likely to be close to flat this year, and growth may be modest next year, he said; the unemployment rate is now 3.7% and might rise to 4.5% by the end of next year.
