Federal Reserve Bank of New York President John Williams said that while inflation has cooled recently toward the Fed’s 2% target, policymakers are still some distance from their goal.
“Inflation is now around 2-1/2%, so we have seen significant progress in bringing it down. But we still have a way to go to reach our 2% target on a sustained basis,” Williams said at event hosted by the Reserve Bank of India in Mumbai on Friday. “We are committed to getting the job done.”
Earlier this week, the New York Fed chief said he was “confident” the US central bank is on a path to achieving its 2% inflation target.
A report released last week showed the Fed’s preferred measure of inflation decelerated in May, boosting the case for the US central bank to begin easing later this year. The so-called core personal consumption expenditures price index, which strips out food and energy, increased just 0.1% from the prior month. That marked the smallest advance in six months.
Fed officials left interest rates unchanged at a more than two-decade high at last month’s policy meeting and signaled they see fewer rate cuts this year from what was expected in March. Policymakers will meet next on July 30 and 31.
Asked about the influence of the Fed’s balance sheet on stock valuations, he played down a direct link while noting that Wall Street’s recent performance reflected the performance of the economy.
“The market has watched the US economy — and I guess I would say India’s economy too — outperform on a pretty consistent basis,” he told a question-and-answer session following his opening remarks.
“Valuations in some cases definitely are stretched,” he said. “But overall, the response has been one to a more positive kind of future for the US.”
Global stocks traded at all-time highs before fresh US jobs data on Friday that’s expected to show some moderation in hiring.
“The economy is doing remarkably well,” Williams said. “Unemployment is low and growth is good. So I think some of market’s kind of positive strength is really based on that.”
‘Well-Anchored’
In the speech — which focused on the uncertainty of monetary policy amid global shifts in climate, technology and supply chains — Williams highlighted the importance of “well-anchored” inflation expectations. He also pointed to the “perennial challenges of measuring the so-called star variables such as r-star.”
The resilience of the US economy has prompted discussions about the so-called long-run neutral interest rate or r-star, a level of rates that neither stimulates nor restrains activity.
Williams has pushed back against recent commentary that the neutral rate has risen since the pandemic. In remarks Wednesday, he cited estimates that place that rate in the US and euro zone near to where it was before the outbreak of Covid-19.
Officials in June lifted their estimates of where rates will settle in the longer term to 2.8%, from 2.6% at the March gathering, according to the median projection. The increase followed a slight bump in March.
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