Williams Pushes Back Fed Inflation Target to 2028
Federal Reserve Bank of New York President John Williams said that US inflation remains too high and is not close enough to the Fed's long-term target of 2%. He now estimates that inflation will return to that target in 2028, slower than the previous expectation of 2027.
Williams emphasized that inflation remains well above the Federal Open Market Committee's long-term goal. He said it is crucial for the Fed to return inflation to its 2% target sustainably, not just temporarily. This statement indicates that the US central bank is not yet ready to relax its vigilance against price pressures.
For this year, Williams estimates inflation will decline to around 3.5%. He believes that inflationary pressures are likely to moderate, but remain at an uncomfortable level. This means that although inflation has the potential to level off, the Fed still needs stronger evidence before declaring the war on inflation over.
Williams also highlighted the risks of war in the Middle East. He believes that if the disruption caused by that conflict subsides quickly, inflationary pressures could also decline. However, as long as the conflict continues to create uncertainty regarding energy, trade, and supply chains, risks to the inflation outlook remain.
Despite this, Williams believes the United States economy remains quite resilient in the face of the war's economic impact. He estimates that the US economy could grow by around 2.25%, while the unemployment rate could potentially fall to 4% by 2028. The labor market is also considered to be showing good resilience.
Regarding monetary policy, Williams stated that the Fed's current policy stance is well-placed to address current economic conditions. This statement signals that the Fed is not in a rush to change interest rates, but remains prepared to maintain a tight policy stance as long as inflation has not returned to its target.
Williams also mentioned the fixed repo operations as an important tool to limit interest rate pressures in financial markets. Furthermore, the Fed will adjust purchases for reserve management as needed to maintain liquidity conditions.
Overall, Williams' statement reinforces the message that the Fed remains cautious about inflation. Although price pressures are expected to ease, the 2% inflation target now appears further away. This condition could keep interest rate expectations high for longer and potentially support the US dollar, while assets like gold will remain sensitive to yield movements and Fed policy expectations. (asd)*
Source: Newsmaker.id
