Fed’s Williams Says He Sees Restrictive Rates for Some Time

(Bloomberg) — Federal Reserve Bank of New York President John Williams sees the need to keep US monetary policy restrictive for some time and said interest-rate cuts may be warranted next year if inflation slows.

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“Monetary policy is in a good place — we’ve got the policy where we need to be,” Williams said in an Aug. 2 interview with the New York Times that was published Monday. “Whether we need to adjust it in terms of that peak rate — but also how long we need to keep a restrictive stance — is going to depend on the data.”

“I expect that we will need to keep a restrictive stance for some time,” he said, according to the Times.

The Fed’s July rate hike brought the benchmark federal funds rate to a target range of 5.25% to 5.5%, the highest level in 22 years. The median of Fed officials’ most recent quarterly projections, published in June, showed two more rate increases this year, the first of which was accomplished with last month’s hike.

The need for more rate hikes is “an open question,” Williams told the Times. And if the inflation rate keeps falling, the central bank may need to lower interest rates in 2024 or 2025 to ensure that real interest rates don’t rise further.

As key US inflation measures cool and the Fed maintains rates at current levels, real rates increase, which “won’t be consistent with our goals,” Williams said.

In his outlook, inflation returns to the central bank’s goal of 2% over the next two years and the economy comes into better balance.

“Eventually, monetary policy will need over the next few years to get back to a more normal — whatever that normal is — a more normal setting of policy,” Williams said, according to the Times.