Williams issues another hawkish warning: inflation is "far too high," and the Federal Reserve still has plenty of work to do.
Author: Jinshi Data
New York Fed President John Williams said on Thursday local time that U.S. inflation remains too high, and the Federal Reserve needs to take further action to ensure prices continue to return to the 2% policy target.
During an event in New York on Thursday evening, Williams said, “Inflation levels are far too high, and even with the latest released data, it remains elevated. We need to take corresponding measures over the coming period to ensure that inflation returns promptly and sustainably to our 2% target level.”
However, he also emphasized that the Fed must avoid causing unnecessary harm to its maximum employment goal. He believes that, overall, the U.S. economy does not currently appear to be out of balance.
The Fed implemented its first rate hike in three years in September, followed by a decision at its October meeting to hold rates steady while awaiting more economic data. Since then, officials have gradually reached a broad consensus that rates will need to be raised further to curb persistently high inflation, though internal disagreements remain regarding the specific pace and magnitude of those hikes.
Inflation Data Strengthens Rate Hike Expectations, Officials Disagree on Pace
Williams stated that the Fed already decided in September to assess subsequent economic data to better understand economic trends before making monetary policy decisions at its next meeting. He said, “We will continue to proceed according to this process.”
But he believes that recently released data has sent quite clear signals: the U.S. economy remains strong, the labor market continues to strengthen, and inflation remains persistent. Williams noted, “There is still plenty of work to do for monetary policy to get to the right place.”
The U.S. October inflation report released Tuesday showed that the core consumer price index (CPI), excluding food and energy prices, rose 0.3% month over month, higher than market expectations for a third consecutive month.
This report further reinforced the judgment that the Fed needs to continue tightening policy. Chicago Fed President Austan Goolsbee described it as “unsettling to a tipping point.”
However, Fed officials still hold different views on the magnitude of rate hikes. Philadelphia Fed President Anna Paulson stated this week that “further gradual tightening of monetary policy appears appropriate at this time.”
In contrast, Fed Governor Christopher Waller left room for a larger rate hike. He had previously indicated that if October’s inflation data came in above expectations, the Fed might consider a single 50-basis-point hike in December rather than the usual 25 basis points. Subsequently released inflation data indeed exceeded expectations.
Interest Rate Futures Bet on Three Consecutive Hikes
Currently, market expectations for the Fed’s future policy path have shifted noticeably hawkish. Interest rate futures indicate that investors expect the Fed to raise rates by 25 basis points at each of the next three meetings (December, January, and March).
Williams is a moderate on the Fed’s Monetary Policy Committee, and his remarks on economic conditions and interest rate policy have consistently drawn close market attention, sometimes directly influencing financial market movements.
Particularly after Federal Reserve Chair Kevin Warsh reduced his public discussions of economic conditions and future interest rate trends, Williams’ policy statements have received increased attention from investors.
As inflation continues to exceed expectations, the policy pressure facing the Fed is mounting. Next, markets will closely watch whether other officials further support consecutive rate hikes, and whether economic data released before the December meeting will reinforce this policy trajectory.
Multiple Fed Officials Sequentially Signal Hawkish Stance
San Francisco Fed President Mary Daly said Thursday that the Fed may need to raise rates further to bring down inflation.
Daly, speaking at an event hosted by the Stanford Institute for Economic Policy Research in California, said, “My inclination is that further tightening of monetary policy will be necessary, because we see inflation continuing to face pressure, and this pressure does not come solely from sectors most directly affected by tariffs or oil prices.” She stated that she is hearing increasingly from businesses that they will have to pass on higher costs to consumers due to rising input expenses.
Daly also discussed the impact of artificial intelligence and its future prospects. She noted that there is no doubt that AI infrastructure construction is driving up price pressures, but its current impact on overall inflation remains limited, as the associated cost increases are not yet large enough and have not yet spilled over into other areas.
Daly added, “This merely indicates that the factors currently driving up overall inflation are others, not AI-related goods.” She reiterated her optimism about the long-term impact of AI in driving faster productivity growth, but cautioned that it is still too early to judge when such effects will truly materialize.
Daly did not have voting rights on monetary policy this year, but she again stated her support for the interest rate decisions previously made by the Fed.
Also on Thursday, Chicago Fed President Austan Goolsbee, Cleveland Fed President Beth Hammack, and Kansas City Fed President Jeff Schmid each addressed their concerns regarding persistently high inflation.
Speaking at an event in Columbus, Ohio, Hammack said, “My expectation is that we need to shift monetary policy to a restrictive stance to help bring inflation down.” She noted that if the Fed falls behind the curve in fighting inflation, officials could consider taking more aggressive action, but she currently does not believe it is necessary to do so.
In an interview with Yahoo Finance, Goolsbee said that AI infrastructure construction may be intensifying inflationary pressures in the economy, pushing the Fed into a phase where inflation is harder to curb. Schmid, for his part, stated that the Fed has yet to defeat the inflation enemy.