By Geoffrey Smith
Investing.com -- The Federal Reserve still probably needs to raise its key interest rate above 5% to bring inflation down durably, a top central bank official said on Wednesday.
"We still have work to do" on raising rates, newswires quoted New York Federal Reserve President John Williams as telling a Wall Street Journal event. He added that the forecast the Fed made in December – indicating a peak in the fed funds rate at 5.25% this year – “still seems a very reasonable view of what we’ll need to do this year in order to get supply and demand in balance and bring inflation down.”
The Fed raised the target range for fed funds by a modest 25 basis points last week to 4.50%-4.75%, but Chair Jerome Powell indicated immediately after that meeting – and again in an interview on Tuesday – that further hikes are likely to be necessary.
In a moderated panel discussion, Williams said that the Fed's monetary policy may need to stay restrictive "for a few years" in order to squeeze out of the system the inflationary pressure that built up due to massive pandemic-era stimulus programs and years of low interest rates. Williams noted that the labor market and the market for some services are still "extraordinarily tight."
He repeated however that the Fed would take its decisions on the basis of how the economic data perform.
Last week's data dump had ended with a labor market report that showed a much larger increase in employment than expected, although it showed no clear signs of wage growth getting out of control. Much of the rest of recent economic data has, by contrast, shown a relatively clear slowdown, as consumers - hurt by high inflation - rein in spending after depleting their pandemic savings.