The Fed’s Williams says inflation is too high but will begin to decline soon

New York Federal Reserve President John Williams on Thursday said inflation is still very high, but he is confident it will begin to slow later this year.

With markets on edge over the direction of monetary policy, Williams offered no clear signs of where he is banking on potential interest rate cuts. Instead, he reiterated recent views from the central bank that it has seen a “lack of further progress” towards its targets as inflation readings have been largely higher than expected this year.

“The honest answer is, I just don’t know,” Williams said during a question-and-answer session with CNBC’s Sara Eisen before the Economic Club of New York. “I think monetary policy is restrictive and bringing the economy into better balance. So I think at some point, interest rates within the U.S., based on data analysis, will eventually have to come down. But time will be driven by how well you achieve your goals.”

Williams called the policy “well-positioned” and “restrictive” and said it is helping the Fed achieve its goals.

Earlier this year, markets had expected aggressive rate cuts from the Fed this year. But higher-than-expected inflation readings have changed that landscape dramatically, and the current price is only pointing to a decline, possibly in November.

“With a better balance of the economy over time and disinflation occurring in other economies reducing global inflationary pressures, I expect inflation to resume easing in the second half of this year,” Williams said. “But let me be clear: inflation is still above our long-term target of 2% and I am very focused on achieving our twin targets.”

For nearly a year, the Fed has been in a holding pattern, keeping its benchmark borrowing rate in a range between 5.25%-5.5%, the highest in more than 23 years.

The Fed is looking to keep the labor market strong and return inflation to its 2% target. Most inflation indicators are close to 3% now; a key reading from the Commerce Department is expected on Friday.

Inflation, measured by the Fed’s preferred benchmark, the personal consumption expenditure price index, is expected to reach 2.7% for April, according to Dow Jones estimates. Williams said he expects PCE inflation to ease to 2.5% this year on its way back to 2% in 2026.

“We have seen great progress toward our goals over the past two years. I am confident that we will restore price stability and set the stage for sustained economic prosperity. We are committed to getting the job done,” he said. he.