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New York Fed President John Williams said on Tuesday that the US central bank’s 2% inflation target “is likely to imply a period of subdued growth and some weakening in labor market conditions.”
He asked that real GDP rise just 1% in 2023 and see the unemployment rate rise to 4%-4.5%. That, in turn, should help the personal consumption expenditures price index, the Fed’s preferred inflation gauge, slide to 3%, which would still be 100 basis points higher than the 2% target. .
His unemployment projection, compared with the current rate of 3.4%, mirrored that of Philadelphia Fed President Patrick Harker, who does not expect a recession this year.
“Our work [on lowering inflation] it’s not done yet,” Williams said in a prepared speech at a New York City regional meeting hosted by the New York Bankers Association. He cited a number of core inflation measures that remain above the 2% target including the New York Fed Multivariate Core Trend, which has been trending around 3.75% for the past few months.
And headline consumer price inflation was 6.4% yoy in January (no change from the previous month), marking the smallest increase since October 2021, but stronger than the 6.2% expected, which underlines the persistence of inflation.
Earlier this month, the rate-setting Federal Open Market Committee, in its quest to squash lingering inflation, raised its benchmark rate to 4.5%-4.75% for the eighth consecutive hike. Williams said she agreed with the most recent FOMC statement calling for “continued increases in the target range” to bring inflation back down to 2%.
Williams said late last year that inflation could hit the 2% target by 2025.