New York Fed’s John Williams leaves door open to rate pause

New York Fed President John Williams hinted Tuesday that the central bank may pause future rate hikes but said if more action is needed policymakers won’t hesitate to act.

“I will be particularly focused on assessing the evolution of credit conditions and their effects on the outlook for growth, employment, and inflation,” Williams said Tuesday at an event with the Economic Club of New York.

“We’re going to get a lot of data between now and our June meeting.”

Williams’ comments on the outlook for interest rates marked his first public comments since the Fed last week raised its benchmark overnight interest rate by a quarter of a percentage point to the 5%-5.25% range. The central bank also signaled that after just over a year of aggressive rate hikes, it may be done, or close to it, with the rate rises.

Williams also serves as vice chair of the rate-setting Federal Open Market Committee, which has been working aggressively to lower high levels of inflation.

In his formal remarks on Tuesday, Williams said “I am confident we are on the path to restoring price stability,” adding, “As always, I’ll be monitoring the totality of the data and what it implies for the achievement of our goals.

He said price pressures remain “too high,” and added that the Fed remains committed to bringing inflation back to the central bank’s 2% target. He also said, “Although we have seen some signs of a gradual cooling in the demand for labor — as well as for some goods and commodities — overall demand continues to exceed supply.”

Tighter credit, slower economy

The Fed is eyeing an end to the rate-hike cycle as inflation pressures have eased a bit.

Meanwhile, tighter financial conditions tied to banking sector troubles are expected to help further cool the economy. But the prospect of further rate rises remains alive, and last week’s robust employment report for April showed that the job market remains very strong even in the face of Fed action, which could in turn compel the central bank to press forward with rate hikes at some point this year.

Fed officials generally agree that the worst of the bank stresses that kicked off in the wake of several high-profile failures starting in March is now over.

Still, Williams said the aftermath of the banking stresses would figure prominently in his thinking about the future of monetary policy.

“I will be particularly focused on assessing the evolution of credit conditions and their effects on the outlook for growth, employment and inflation,” he said.

Williams said he expects inflation, which was running at an annual rate of 4.2% in March as measured by the personal consumption expenditures price index, to fall to 3.25% this year and back to the 2% target by 2025.

He noted there have been signs of slowing price pressures but noted that core services inflation stripped of housing factors remains persistent.

He also said he sees the economy growing moderately this year and that the jobless rate, at 3.4% as of April, should rise to between 4% and 4.5% this year.