John Williams, chairman of the Federal Reserve Bank of New York and vice chairman of the Federal Open Market Committee (FOMC), said on Friday (16) that although inflation has shown some signs of slowing, a tight job market and other factors could prevent for prices to rise The pressure continues to build, forcing interest rates to remain at their highest levels for some time to come. Williams also predicted that the terminal rate next year could be higher than the 5.1% the Fed expected this week.
In an interview, Williams said there were clear signs that demand in the job market and the broader economy was outpacing supply, and he forecast inflation will slow to a range of 3% to 3.5% next year, but he stressed that the real question is how Let inflation go back to 2%.
Williams said that if inflation were to be brought back to its 2% target level, the terminal rate could be higher than the Fed expected. He further explained that the height of interest rates really depends on what the Fed observed in terms of inflation and supply-demand imbalances.
Williams, meanwhile, downplayed predictions by some Fed watchers that the terminal rate could hit 6% or even 7%. He said the estimated interest rate is not his bottom line and that the Fed is currently making some favorable progress in reducing inflation, including easing the supply chain, commodity and import prices.
Williams stressed, however, that inflation in these basic services remains high and protracted, a true reflection of the supply-demand imbalance in the labor market and the broader economy. Williams, on the other hand, doesn’t see a recession as inevitable, noting that given the Fed’s current outlook, it clearly isn’t in a recession yet.
Market reaction
Williams’ aggressive remarks delved into the intraday declines of major US stock indexes.Dow Jones Industrial Averagefell more than 450 points or nearly 1.4%,Nasdaq Composite Indexfell nearly 150 points or nearly 1.4%,S&P 500 indexfell nearly 1.6%,Semiconductor PhiladelphiaThe index fell nearly 1.4%. United States 10-year Treasury bill yieldrose to 3.49%,dollar indexIt rose to 104.34, reversing previous losses.
According to the CME FedWatch Tool, the US federal funds rate futures market predicts that the probability of raising interest rates by 2 yards (50 basis points) in January next year is 75%, and the probability of raising rates interest rate of 3 yards (75 basis points) basis points) is 25% and the terminal interest rate falls in the range of 4.75% to 5%.
