John Williams, the president of the New York Federal Reserve, stated on Tuesday that he anticipates interest rates to rise further and stay there until inflation is brought under control.
Williams told The Wall Street Journal that he agrees with the higher-for-longer school of thought when it comes to monetary policy, echoing recent remarks from Fed Chair Jerome Powell.
“We’re going to need to have restrictive policy for some time,” he stated during a live interview. “This is not something we’re going to do for a very short period and then change course.”
This forecast comes after Powell expressed his predictions for benchmark interest rates using the phrase “for some time” only a few days prior. The Fed chairman stated that “the historical record cautions strongly against prematurely loosening policy” at his yearly policy speech in Jackson Hole, Wyoming.
Powell and Williams make comprise the policy-making team at the Fed, along with Vice Chair Lael Brainard. They want to bring down inflation, which is currently close to reaching its highest point in more than 40 years and is significantly higher than the central bank’s objective of 2%.
Williams didn’t make it clear in which direction he wanted to see rates go. He did, however, add that in his opinion, real interest rates—that is, nominal levels minus inflation—must be positive in order to reduce inflation. The current target range for the federal funds rate is 2.25 to 2.5 percent, which is significantly lower than the preferred core personal consumption expenditures price index inflation measure, which was 4.6% in July.
“I do think with demand far exceeding supply, we do need to get real interest rates … above zero,” Williams said. “We need to have somewhat restrictive policy to slow demand, and we’re not there yet.”
The Fed is, in his opinion, “still quite a ways from that,” he continued.
According to CME Group data, current marking prices call for the Federal Open Market Committee, which sets interest rates, to approve a third consecutive three-quarter point rate increase in September, followed by a half-point change in November and a quarter-point increase in December. Then, in the fall of 2023, the markets anticipate that the Fed will begin to make cuts.
Williams stated that some tightening of financial conditions as a result of the hikes has pleased him, but he stressed that he needs to see more before considering a change in policy.