“From my perspective right now, I see us needing to kind of hold a policy stance – pushing inflation down, bringing demand and supply into alignment – it’s going to take longer, will continue through next year,” Williams told the Wall Street Journal. “Based on what I’m seeing in the inflation data, and what I’m seeing in the economy, it’s going to take some time before I would expect to see adjustments of rates downward.”
Fed Chair Jerome Powell last week made clear he and fellow monetary policymakers are prepared to raise borrowing costs as high as needed to restrict growth and push down inflation that’s currently running at more than three times the Fed’s 2% target, even though doing so will likely mean lost jobs and pain for households and businesses.
Williams, who is Powell’s No. 2 on the Fed’s policymaking panel, said that the Fed’s decision on the size of the next interest rate hike will depend on incoming data, which includes Friday’s monthly jobs report and the consumer price index reading just days before the Sept. 20-21 meeting.
It will also depend, he said, on policymakers’ views of how high rates will ultimately need to rise to start biting into inflation pressures. His own view, he said, is that rates will need to “somewhat above” 3.5% before they actually start to restrict the economy. That’s based on his estimate that inflation, which registered 6.3% by the Fed’s preferred measure in July, is likely to be between 2.5% and 3% next year.
The Fed raised the benchmark fed funds rate to 2.25-2.50% at its last meeting in July.
It will take a few years before the Fed will be able to get inflation back down to the 2% target, Williams said.
“We’re going to need to have restrictive policy for some time — this is not something that we’re going do for a very short period of time and then change course; it’s really more about getting policies to the right place to get inflation down and keeping it in this position” to achieve that goal.