New York Fed says inflation remains above target as markets weigh rate path
Resilient U.S. growth and a stable labour market are giving policymakers room to focus on inflation, which New York Federal Reserve President John Williams says remains too high. His remarks in Frankfurt come as investors assess whether the Federal Reserve will need to tighten policy further in coming months.
Highlights
- New York Fed President John Williams stated at an ECB event that U.S. inflation remains above target and must return to 2% sustainably.
- Williams noted resilient U.S. economic growth and stable labor markets, while emphasizing the need to monitor if current shocks drive broader persistent inflation.
- Financial markets now price over a 50% chance of a Federal Reserve rate hike in December, with a move fully priced in by March.
Williams flags inflation risks at Frankfurt ECB event
As reported by Reuters, Williams told a European Central Bank conference in Frankfurt on Friday that inflation is still running above the Federal Reserve's goal and needs to return to 2% in a timely and sustained way.He said U.S. economic growth has remained resilient and the labour market is remarkably stable despite successive shocks. Williams added that inflation has been too high for too long, while arguing that policymakers should pay close attention to where price growth is heading and whether current shocks feed into broader, more persistent inflation.
Williams said inflation expectations remain well anchored so far and that wage growth appears consistent with the Fed's 2% objective. He did not signal what the central bank's next policy move should be, but said the Fed's latest policy statement was right to conclude that officials should gather more information before deciding the appropriate policy stance.
Market implications for Fed policy expectations
Williams' comments come amid renewed inflation pressure globally, with higher energy prices linked to the U.S. war on Iran and stronger AI-related investment lifting costs for some information technology products and services.Financial markets are pricing in a more than 50% chance of a Federal Reserve rate increase in December, while a move by March is fully priced in. That leaves investors focused on whether resilient U.S. activity and contained inflation expectations can keep the central bank patient, or whether persistent price pressures will force further tightening.
Our earlier article on UBS’s extended Fed tightening-cycle forecast explained why the bank expects additional rate hikes, citing stronger inflation data and overlapping shocks that could keep policy restrictive for longer. We also noted that markets had quickly repriced the path of rates after the CPI surprise, reinforcing “higher-for-longer” expectations heading into upcoming Fed meetings.