The Fed: Fed’s Williams thinks inflation can be stabilized without recession
New York Federal Reserve President John Williams said Friday he is confident the central bank can stabilize inflation without a recession.
In an interview on CNBC, Williams was asked about an op-ed from former U.S. Treasury Secretary Lawrence Summers that there have been few, if any, instances in which inflation has been successfully stabilized without recession.
“I am confident we can do that.,” Williams said.
“Monetary policy over the past quarter century or even longer has shown we can accomplish and deliver stable low inflation and, you know, try to mitigate the effects of recessions and we can get the economy back to maximum employment,” he added.
The New York Fed president said the economy was now in a unique set of circumstances driven by the COVID pandemic and “looking back at historical episodes” is not the best guide for how the economy will evolve.
On Wednesday, the Fed announced it was tapering its bond purchases so that the program ended in March and not June. The central bank also projected three quarter-point interest rate hikes next year as Fed Chairman Jerome Powell said there was a risk of high inflation persisting.
One puzzle in the wake of the Fed meeting is that the yield on the 10-year Treasury note has fallen after the announcements. Asked about the lower yields, Williams said longer-date U.S. government securities seem to be driven in part by COVID-related news.
In other remarks, Williams said he didn’t see any benefit from ending asset purchases sooner than March.
“I don’t see there is any real benefit to try to speed it up further,” Williams said. Ending the purchases at the end of the first quarter creates the optionality for the Fed to being to raise its benchmark short-term interest rates, he said.
Williams said he expects inflation to come down “somewhat” next year, and sees strong economic growth and further improvement in the labor market.
“Actually raising interest rates will be a sign of a positive development,” he said.
Williams said inflation “is obviously too high right now” and the Fed wants to make sure that inflation comes back down to the 2% longer-run goal.