New York Fed President John Williams on Monday said he thinks the benchmark the central bank has set for starting to slow down asset purchases remains “quite a ways off.”
In a speech to bankers and subsequent comments to reporters, Williams said the economy has not reached the “substantial further progress” benchmark that the Fed set last December as needed before the central bank would taper its asset purchases.
“We’ve made some progress,” Williams said, and the central bank is watching the data closely.
Williams also said the recent spike in inflation is “mostly due to” temporary factors, and inflation should return to the central bank’s 2% target next year.
“My view is that the spike in inflation mostly reflects the temporary effects of the surprisingly rapid opening of the economy,” Williams said, during a webconference with the Midsize Bank Coalition of America.
“Once these prices have fully adjusted to the reopening economy, they shouldn’t continue to increase at recent elevated rates, and their effect on overall inflation should subside,” he added.
Williams said inflation will come down close to 2% next year and in 2023, from around 3% this year.
Williams said the longer-term trends that have held inflation down over the past decade would reassert themselves.
Williams is seen as a close ally of Fed Chairman Jerome Powell. The New York leadership position comes with a perennial vote at Fed interest-rate committee meetings. Consequently, his view carries more weight among some Fed watchers.
Data released at last week’s Fed meeting showed that central bank officials are split about the outlook.
Earlier Monday, two regional Fed bank presidents — Dallas Fed President Robert Kaplan and St. Louis Fed President James Bullard — said they thought inflation would stay elevated next year and they pushed for a conversation among their colleagues about tapering the central bank’s asset purchases.
Williams said it was hard to say when the Fed would hit the benchmark.
“It really depends on how the economy unfolds, how it evolves,” he said.
He said there was a lot of “churn” in the labor market and it was hard to know if it was loose or tight. The central bank’s goal was maximum employment, he stressed.
While the job market might be “tight” in the short run, additional labor supply was likely to return sometime in the fall or next near, Williams said.
Late Monday afternoon, Powell said the Fed “will do everything we can to support the economy for as long as it takes to complete the recovery. “
Stocks finished sharply higher on Monday after declining last week. The Dow Jones Industrial Average
finished almost 600 points higher.