Fed Williams: It’s an open question on additional rate hikes

In a candid interview with the New York Times, New York Fed President John Williams deemed the present monetary policy as being “in a good place”. It’s an “open question” on whether Fed needs additional rate hikes.

He emphasized the need to “watch the data”. “Are we seeing the supply-demand imbalances continue to shrink, move in the right direction? Are we seeing the inflation data move in the right direction?”

He anticipates that the need for a restrictive monetary stance will persist for a while. He contemplates, “I think we’re pretty close to what a peak rate would be, and the question will really be — once we have a good understanding of that, how long will we need to keep policy in a restrictive stance, and what does that mean.”

Also, highlighting his approach towards monetary policy, Williams thought of monetary policy primarily in terms of “real interest rates”, rather than “nominal rates” set by Fed. He stressed the potential consequences if inflation rates declined as projected by numerous forecasts: “if we don’t cut interest rates at some point next year then real interest rates will go up, and up, and up. And that won’t be consistent with our goals.” Hence, “to keep maintaining a restrictive stance may very well involved cutting the federal funds rate next year, or year after”.