By Michael S. Derby
NEW YORK New York Federal Reserve President John Williams said on Tuesday that inflation remains too high, noting that he'll be monitoring how the aftermath of recent banking sector stress is weighing on the economy when deciding what the U.S. central bank needs to do with monetary policy.
"I am confident we are on the path to restoring price stability," Williams said in prepared remarks for a speech to an Economic Club of New York gathering. "As always, I'll be monitoring the totality of the data and what it implies for the achievement of our goals.
Williams said price pressures remain "too high," and added that the Fed remains committed to bringing inflation back to the central bank's 2% target. He also said "although we have seen some signs of a gradual cooling in the demand for labor - as well as for some goods and commodities - overall demand continues to exceed supply."
Williams' speech marked his first public comments since the Fed last week raised its benchmark overnight interest rate by a quarter of a percentage point to the 5.00%-5.25% range. The central bank also signaled that after just over a year of aggressive rate hikes, it may be done, or close to it, with the rate rises.
Williams also serves as vice chair of the rate-setting Federal Open Market Committee, which has been working aggressively to lower high levels of inflation.
The Fed is eyeing an end to the rate-hike cycle as inflation pressures have eased a bit. Meanwhile, tighter financial conditions tied to banking sector troubles are expected to help further cool the economy. But the prospect of further rate rises remains alive, and last week's robust employment report for April showed that the jobs market remains very strong even in the face of Fed action, which could in turn compel the central bank to press forward with higher rates at some point this year.
Fed officials generally agree that the worst of the bank stresses that kicked off in the wake of several high-profile failures starting in March are now over.
Still, Williams said the aftermath of the banking stresses will figure prominently in his thinking about the future of monetary policy. "I will be particularly focused on assessing the evolution of credit conditions and their effects on the outlook for growth, employment, and inflation," he said.
Williams said he expects inflation, which was running at an annual rate of 4.2% in March as measured by the personal consumption expenditures price index, to fall to 3.25% this year and back to the 2% target by 2025. He noted there have been signs of slowing price pressures but noted that core services inflation stripped of housing factors remains persistent.
He also said he sees the economy growing moderately this year and that the jobless rate, at 3.4% as of April, should rise to between 4.0% and 4.5% this year.
(Reporting by Michael S. Derby; Editing by Paul Simao)