The Federal Reserve likely needs to raise its benchmark interest rate “slightly above” the 3.5% level to slow the economy, New York Fed President John Williams said on Tuesday. This level would be “restrictive” and likely to slow down demand.
In an interview with The Wall Street Journal, Williams said he thinks the Fed will have to maintain a tight policy “until next year.”
“It’s going to be a while before I expect to see a downward rate adjustment,” Williams said.
Over the past four meetings, the Fed has raised its key rate to a range of 2.25% to 2.5%.
Williams is a close ally of Fed Chairman Jerome Powell. His comments add detail to Powell’s brief speech in Jackson Hole last Friday in which Powell said the Fed needed to keep raising interest rates and keep them higher to keep inflation under control even as unemployment rose. .
Regarding the debate over the likely size of the rate hike expected in September, Williams echoed Powell in saying it would depend on the “totality” of economic data by September 20.
Traders betting on Fed moves in the fed funds futures market see a 73% chance the Fed will hike its key rate by 0.75 percentage points at the meeting, which would be the third big hike in a row. . Some economists expect the Fed to forgo a half-percentage-point hike.
Turning to the economic outlook, Williams said he saw “some good signs” on inflation, but was quick to add that it remained too high.
Williams said there were “cross-currents” in the data. While spending and gross domestic product have been weaker than expected, “the real news here” is that the labor market has been “very strong.”
US stocks were down on Tuesday for the third consecutive session. The yield of the 10-year Treasury note TMUBMUSD10Y,
was volatile in Tuesday’s trading, rising in the early afternoon to 3.12%.