In a statement released on Friday, New York Fed President John Williams conveyed that the Federal Reserve is currently positioned at or in close proximity to the zenith of interest rates, and anticipates maintaining this stance for an extended period. Williams articulated, “My current assessment is that we are at, or near, the peak level of the target range for the federal funds rate,” during prepared remarks for an event in Long Island, New York, which regrettably was canceled.
The Federal Reserve’s decision last week to keep interest rates steady in the range of 5.25% to 5.5% was accompanied by a projection for one additional rate hike later this year. Williams underscored the persistence of inflation, despite its slight downturn from its zenith. He envisages an inflation rate of approximately 3.25% for the entirety of this year, with a projected decline to around 2.5% next year, eventually approaching the desired 2% benchmark in 2025.
The release of the Personal Consumption Expenditures (PCE) index, the Federal Reserve’s favored gauge of inflation, occurred on Friday. On a “core” basis, which omits the volatile food and energy categories, the PCE index demonstrated a 3.9% uptick in August, a marginal decrease from the preceding month’s 4.1% surge.
Williams articulated signs of a more balanced job market, emphasizing the equilibrium between job resignations and new hires reverting to pre-pandemic levels. He also noted a reduction in the number of job openings, which although still elevated compared to historical norms, has gravitated towards more customary levels. Furthermore, wage growth has witnessed a considerable deceleration from its earlier peaks.
Nevertheless, Williams exercised prudence, cautioning that there exists a finite capacity for the labor force to expand in order to meet the job market’s demand for workers in the foreseeable future. He emphasized the necessity for further reductions in demand to restore equilibrium to the labor market. Williams affirmed, “Our monetary policy actions are having the intended effects, but will take time to fully work their way through the economy and inflation.”
Looking ahead, Williams foresees an economic deceleration in the upcoming year, as the Federal Reserve’s heightened interest rates permeate through the economy. He anticipates a Gross Domestic Product (GDP) growth rate ranging from 1% to 1.25%, with a modest uptick in the unemployment rate from 3.8% to slightly over 4%.
In summary, John Williams’ statement solidifies that the Federal Reserve is presently operating at or in close proximity to its peak interest rates, with an expectation for this status quo to persist. This announcement follows the Federal Reserve’s decision to maintain interest rates within the range of 5.25% to 5.5%, while still projecting one additional rate hike this year. The New York Fed President underscored the lingering inflation levels and highlighted various indicators of a more balanced job market. He also advised that it will take time for the full effects of the Federal Reserve’s monetary policies to materialize. In conclusion, the economy is poised to decelerate next year as the impact of higher interest rates becomes more pronounced, but numerous indicators point to a continually improving job market.
Source: Yahoo Finance
