Fed chair says Inflation ‘Too High’

Federal Reserve Bank of New York President John Williams has warned that inflation remains at problematic levels and the central bank will take action to reduce it. Speaking at an event in New York, Williams acknowledged that recent banking sector stress is likely to impact economic activity. He did not comment on his personal view on monetary policy but noted that recent forecasts have highlighted the potential for more monetary policy tightening to address inflation.

The Fed has been increasing its short-term rate target aggressively in the past year, most recently raising it by 25 basis points in March to between 4.75% and 5%. It is expected to increase the rate again by a quarter percentage point in May, with the rate then being held for the remainder of the year.

Williams also discussed the recent stress in the banking sector, which has resulted in extensive emergency lending by the Fed. While conditions appear to be stabilizing, the challenges will likely make credit more expensive and harder to access, potentially depressing growth.

Despite the challenges, Williams believes that the economy will avoid a recession. He predicts that inflation will ease to 3.25% this year and hit the Fed’s 2% target within the next two years. The unemployment rate is expected to rise to between 4% and 4.5% over the next year, and growth is expected to moderate this year before rebounding next year.

Williams told reporters that the high levels of borrowing from the Fed by banks seeking liquidity are not an issue and are a sign that the stigma around borrowing via the discount window is fading. He added that it is likely that this borrowing will decline as banking sector conditions continue to stabilize.