New York Fed President John Williams said the higher oil prices stemming from Russia invasion of Ukraine may act like a “tax” on American consumers. But, “the economy is coming into this with a lot of forward momentum. It’s definitely not a stagflation issue.”

Williams expect inflation to come down later this year but stays “well above” 2% target. He emphasized Fed has the “ability to adjust interest rates higher if inflation ends up being much more persistent or staying much higher than we expect or want”.

Chicago Fed President Charles Evans said “inflation is quite a risk to economic growth. And Fed needs to “alter monetary policy so it is moving towards a neutral stance.” He added, if inflation accelerates, “we can hike rates even faster.”

“We need to go above a zero rate by quite a bit, and we are going to get a move on,” Evan’s noted.

He expects headline inflation to stay above 3% level by the end of this year, before dropping to 2.5% in 2023. It will take until 2024 to get inflation back to the 2% target.

In the semiannual testimony to Congress, Fed Chair Jerome Powell said,”with inflation well above 2 percent and a strong labor market, we expect it will be appropriate to raise the target range for the federal funds rate at our meeting later this month.”

He reiterated that “federal funds rate is our primary means of adjusting the stance of monetary policy”. And, “reducing our balance sheet will commence after the process of raising interest rates has begun, and will proceed in a predictable manner primarily through adjustments to reinvestments.

Powell also said, “the near-term effects on the U.S. economy of the invasion of Ukraine, the ongoing war, the sanctions, and of events to come, remain highly uncertain. Making appropriate monetary policy in this environment requires a recognition that the economy evolves in unexpected ways. We will need to be nimble in responding to incoming data and the evolving outlook.”

Full remarks here.