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NY Fed's Williams: 'Still more work to do' to bring down inflation

New York Fed President John Williams said Monday he sees signs inflation is starting to come down, but says there is still more work to do for the Fed to reach its goal of 2% inflation.

"Overall demand for labor and services still far exceeds available supply, resulting in broad-based inflation, which will take longer to bring back down,” Williams said in a speech Monday at the Economic Club of New York.

Williams added there is "still more work to do" as the Fed continues its rate hike campaign to tame price inflation. "Further tightening of monetary policy should help restore balance between demand and supply and bring inflation back to 2 percent over the next few years," Williams added.

Williams said he expects core goods prices to come down going forward, pointing to combination of slowing global demand, improving supply chains, and falling import prices from the strong dollar.

“I expect cooling global demand and steady supply improvements to result in declining inflation for goods that rely heavily on commodities, as well as for those that have been heavily affected by supply chain bottlenecks,” Williams said.

Speaking with reporters following prepared remarks, Williams said he sees a “somewhat higher path” for interest rate hikes than projected in September, and that he expects the central bank will hold rates at peak level through at least next year.

After that, things become a bit hazy to prognosticate and will depend on the data, Williams said.

While Williams' baseline scenario is that the economy will grow below trend and avoid recession, the risk of a shock occurring and causing the economy to contract is “mathematically greater.”

"Negative shocks to the global economy clearly could tip us into recession," Williams told reporters. "Clearly a risk out there given uncertainty in global economic outlook."

Following Williams' comments, stocks were trading at session lows on Monday afternoon.

John Williams, Chief Executive Officer of the Federal Reserve Bank of New York, speaks at an event in New York, U.S., November 6, 2019. REUTERS/Carlo Allegri
John Williams, Chief Executive Officer of the Federal Reserve Bank of New York, speaks at an event in New York, U.S., November 6, 2019. REUTERS/Carlo Allegri

Williams is also encouraged by a sharp slowdown in growth in rents for new leases and signs the job market is starting cool with quits and job openings declining from the high levels of the spring, along with indicators of slowing wage growth.

Williams said he expects unemployment to rise to between 4.5% to 5% by the end of next year from 3.7% now. He expects inflation to slow from its current rate of between 5-5.5% at the end of the year to 3%-3.5% next year.

In early November, the Fed raised interest rates by 75 basis points for the fourth straight meeting to a range of 3.75% to 4% that brought rates to their highest level since the end of 2007.

Markets are pricing in a 50-basis point move for the Fed's December meeting.

Fed officials said at their most recent policy meeting they believe it will soon be time to slow down the central bank's current pace of rate hikes, according to minutes released last week.

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