Fed’s Williams says inflation is too high but will start to fall soon

NEW YORK – New York Federal Reserve President John Williams said Thursday that inflation is still too high, but he is confident it will begin to slow later this year.

With markets on edge over the direction of monetary policy, Williams did not give a clear indication of his position on a possible interest rate cut. Instead, he repeated the central bank’s recent stance that it sees “no further progress” toward its goals as inflation figures this year have been mostly higher than expected.

“The honest answer is: I just don’t know,” Williams said during a question-and-answer session with CNBC’s Sarah Eisen before the Economic Club of New York. “I do believe that monetary policy is contractionary and provides a better balance to the economy. So I think at some point US interest rates, based on data analysis, will eventually have to come down. But the timing will be determined by how well you achieve your goals.”

Williams called the policy “well-thought out” and “restrictive” and said it helps the Fed achieve its goals. As for a potential rate hike, he said, “I don’t think it’s likely.”

Earlier this year, markets were expecting aggressive rate cuts from the Fed this year. But higher-than-expected inflation figures have changed that picture dramatically, and current prices point to just one decline, likely in November.

“As the economy comes into better equilibrium over time, and disinflation occurring elsewhere reduces global inflation pressures, I expect inflation to resume slowing in the second half of this year,” Williams said. “But let me be clear: Inflation continues to exceed our long-term goal of 2%, and I am very focused on making sure we achieve both of our dual mandate goals.”

For nearly a year, the Fed has been in standby mode, keeping its benchmark borrowing rate between 5.25% and 5.5%, the highest in more than 23 years.

The Fed is committed to keeping the labor market strong and bringing inflation back to its 2% target. Most inflation indicators are now around 3%, and key Commerce Department data is due out Friday.

Dow Jones estimates inflation, as measured by the Fed’s preferred measure of personal consumption expenditures price index, will be 2.7% in April. Williams said he expects PCE inflation to fall to 2.5% this year and return to 2% in 2026.

“Over the past two years, we have seen significant progress towards our goals. I am confident that we will restore price stability and create the basis for sustainable economic prosperity. We are determined to get the job done,” he said.