US inflation to ease in H2; says New York Fed’s Williams
New York Fed president John Williams said on Thursday that he expects US inflation to start cooling down again in the second half of the year, Bloomberg reported.
He once again reiterated that the Federal Reserve will not lower rates until it sees further progress on that front.
“I see some of the recent inflation readings as representing mostly a reversal of the unusually low readings of the second half of last year, rather than a break in the overall downward direction of inflation,” Williams stated in a speech at the Economic Club of New York.
“With the economy coming into better balance over time and the disinflation taking place in other economies reducing global inflationary pressures, I expect inflation to resume moderating in the second half of this year,” he further said.
Williams highlighted the part in the Fed’s last policy statement, which stated that it doesn’t “expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”
On May 1, the Fed decided to keep its benchmark interest rate in a range of 5.25 per cent -5.50 per cent in an attempt to cool down the inflation to the 2 per cent target. Minutes from the May 1 meeting released last week hinted that some policymakers had discussed their willingness to raise rates if needed.
Minutes from that May 1 meeting released last week indicated some policymakers discussed their willingness to raise rates if needed.
Williams’ statements on Thursday seemed to throw some cold water on the notion that a rate hike could be in the cards, something he had stressed in recent weeks is not what he expects.
He further said that the behaviour of the US economy over the past year provides “ample evidence that monetary policy is restrictive in a way that helps us achieve our goals.”
Williams expects inflation ending the year at 2.5 per cent, which would be two tenths of a percent lower than where inflation currently stands at 2.7 per cent as measured by the Fed’s preferred inflation gauge — the “core” Personal Consumption Expenditures index.
A fresh reading on that gauge from April is poised to be released Friday. Economists expect core-PCE showed no progress in April, holding the level of 2.7 per cent year-over-year seen in March.
Williams also referred that the job market remains strong and that wage growth has yet to be fully back to levels consistent with 2 per cent price inflation on a sustained basis. He also expects the unemployment rate ending the year at about 4 per cent, and then moving gradually down to 3.75 per cent. The unemployment rate is currently at 3.9 per cent and is expected to hold that level when the May jobs report is published next Friday.
