HomeBusinessFed's Williams pushes back market expectations for a rate cut next year

Fed’s Williams pushes back market expectations for a rate cut next year

John Williams, chief executive officer of the Federal Reserve Bank of New York, speaks at an event in New York City, Nov. 6, 2019.

Carlo Allegri | Reuters

John Williams, president of the New York Federal Reserve, said on Tuesday that he expects interest rates to remain higher and remain at that level until inflation moderates.

Echoing recent comments from Fed Chair Jerome Powell, Williams told The Wall Street Journal that he is also in the higher-for-long camp when it comes to monetary policy.

“We will have to have a restrictive policy for a while,” he said in a live interview. “This is not something that we are going to do for a very short period of time and then change course.”

That outlook comes just days after Powell also used the language “for a while” to describe his expectations for benchmark rates. In his annual policy speech in Jackson Hole, Wyoming, the Fed chief noted that “the historic record strongly warns against premature policy easing.”

Along with Vice-Chairman Lael Brainard, Powell and Williams make up the Fed’s policy brain confidence. They are trying to cut inflation, which is near its highest level in more than 40 years and well above the central bank’s target of 2%.

Williams has not specifically said where he would like to see the rates go. But he did note that he believes that to reduce inflation, real interest rates — nominal levels minus inflation — must be positive. The Fed Funds rate is currently targeting a range between 2.25% and 2.5%, well below the central bank’s preferred inflation measure for the consumer spending price index, which stood at 4.6% in July.

“I think with demand much greater than supply, we need to get real interest rates…above zero,” Williams said. “We need to have a somewhat restrictive policy to slow demand, and we’re not there yet.”

He added that he thinks the Fed is “still a long way from that.”

According to CME Group data, the current mark price must be approved by the rate-setting Federal Open Market Committee in September for a third consecutive three-quarter-point increase, followed by a half-point move in November and a quarter-point increase in December. . Markets then expect the Fed to start cutting in late 2023.

Williams said he was encouraged by some tightening of financial conditions following the increases, but added he needs to see more before considering a policy change.

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