"Inflation is really too high"! Federal Reserve "third-in-command": The Fed must continue to take action and promptly bring the price level back to 2%

According to Zhitong Finance APP, as the “number three” at the Federal Reserve with permanent voting rights, New York Fed President John Williams stated that U.S. inflation remains elevated and policymakers must take further action to curb price pressures.

“Inflation is just too high, even the latest data show that inflation remains elevated,” Williams said Thursday evening local time at an event in New York. “We need to implement policy gradually to ensure that inflation falls back to the 2% target level in a timely and sustainable manner.”

Meanwhile, he said the Federal Reserve must “avoid unnecessary damage to the goal of full employment.” Williams also noted that overall, the economy does not appear to be out of balance.

After raising interest rates in September for the first time in three years, the Federal Reserve held rates steady last month to await clearer economic data. Since then, officials have broadly agreed that further rate hikes are needed to combat high inflation, but opinions differ on the pace of rate increases.

Some officials, such as Philadelphia Fed President Anna Paulson, said this week that “it’s appropriate to continue a gradual tightening of policy.” But Fed Governor Christopher Waller opened the door to a substantial 50 basis point rate hike as early as next month—provided the October inflation data exceeds expectations—which indeed turned out to be the case shortly after his comments.

Clear Data Signals

Williams said the Federal Reserve agreed in September to assess upcoming data to “better understand what is happening” and then decide on policy at the next meeting. “We will continue to use this assessment process,” he pointed out.

“I think the data is sending us very clear signals—the economy is strong, the labor market continues to strengthen, and inflation is sticky,” he said. “There’s still a lot of work to do to get monetary policy in the right place.”

The inflation report released on Tuesday showed that core consumer prices, excluding food and energy, rose 0.3% month-over-month in October—higher than expected for the third month in a row. Chicago Fed President Austan Goolsbee described the data as “almost disturbing.”

Interest rate futures currently indicate that investors expect 25 basis point rate hikes at each of the next three meetings—in December, January, and March.

Job Market

Williams is considered a centrist within the Fed’s policy committee, and his comments on economic conditions and policy are closely watched. As Fed Chairman Kevin Walsh has reduced public commentary on the economy and the possible path for rates, Williams’ remarks occasionally move financial markets.

“The U.S. economy is not only continuing to grow, its momentum is strengthening,” said the New York Fed President. “We’re seeing this in the labor market as well. But we’re not seeing signs of the economy overheating, nor are we seeing signs of the economy in any way out of balance.”

Data released last week showed that U.S. job growth surged in October, with the unemployment rate unexpectedly dropping to 4.1%. Private sector job growth was the strongest since March.

When discussing concerns about the U.S. government’s borrowing scale, Williams offered a positive outlook during Thursday’s panel discussion.

“This is not an economic problem for the United States,” he said, while noting that other countries are also contending with fiscal worries, including France, which has faced unrest. “Our growth rate is nearly outpacing all countries, and we have this AI wave ahead of us—I expect sustained robust growth for the next decade—so we have the economic means to handle the fiscal situation we’ve inherited.”

“We just need the political will to solve this problem,” Williams said. “That’s exactly what gives me hope.”

However, the New York Fed President stated that the foundation for this strong economy “may be more fragile in the shorter term. If there is a significant economic slowdown, or if enthusiasm for AI changes, we might see some degree of pullback.”