John Williams, president of the Federal Reserve Bank of New York and vice chairman of the Federal Open Market Committee (FOMC), said in an interview with the Wall Street Journal (WSJ) on Wednesday (8th) that the forecasts made by Fed officials in December last year were very accurate. A good guide to the direction of interest rates this year, policy may need to remain restrictive in the next few years to keep inflation down.
Fed policymakers had forecast the benchmark federal funds rate would hit 5.1 percent by the end of 2023, implying several more rate hikes this year from a current range of 4.5 percent to 4.75 percent.
Williams said raising interest rates appeared to be a very reasonable step for the central bank to take this year to balance supply and demand and reduce inflation. In addition, he also said that a further hike of 1 yard (25 basis points) “seems to be an appropriate range”, but the speed of raising interest rates still depends on future economic data and emphasized that the Fed still has a lot of work to do.
Williams believes that if inflation continues to heat up or financial conditions loosen, the Fed may need to raise interest rates in response to make rates strict enough. He pointed out that the current interest rate is “barely reaching a strict” level, and believes that there are still many uncertainties in the outlook for inflation, so there must be various factors that keep inflation going.
He added that the Fed needs to raise interest rates to restrictive levels for a few years to ensure that inflation falls back to the 2 percent level and then, over time, bring rates back to more normal levels.
On the labor market, Williams said wage growth remained “well above” the Fed’s 2 percent target, noting persistent price inflation pressures in services excluding housing, food and energy.
He said there is still a supply-demand imbalance in the job market and the economy, and Fed officials need to focus on keeping it in line with the 2 percent inflation target.
Fed Chairman Powell insisted on the need to continue raising interest rates to curb inflation in his speech yesterday, and believed that if price pressures persist, borrowing costs may reach a higher peak than traders and policymakers expected. Powell’s view on the labor market is that it is unusually strong and needs further rate hikes to cool down.
Market Reaction
before the deadline,Dow Jones Industrial AverageMaintained the opening trend, fell more than 70 points or nearly 0.2%, temporarily reported at 34,081.07 points,NasdaqThe index fell more than 150 points, or nearly 1.3%, to 11,955.06 points temporarily,S&P 500 IndexIt fell nearly 0.71% to 4,134.33 points temporarily,fee halfThe index fell nearly 1.4% to 3,080.60, reversing its early gains.
According to the CME FedWatch Tool, investors in the federal funds rate futures estimate that the probability of the Fed raising interest rates by 1 yard in March is 90.8%, the probability of raising interest rates by 2 yards (50 basis points) is 9.2%, and the terminal interest rate falls at 5%. to 5.25%.
