Lot more work to do to bring inflation down, restore price stability, get interest rates in right place: NY Federal President

John Williams, President of the Federal Reserve Bank of New York (Image credits: Reuters)

The Federal Reserve could push interest rates higher if the financial conditions continue to loosen, said the John Williams, President and Chief Executive Officer of the Federal Reserve Bank of New York.

Speaking at the Wall Street Journal roundtable, the Fed President indicated that the central bank probably needs to raise its key interest rate above 5 percent to bring inflation down durably.

The Fed raised the target range for fed funds by 25 basis points last week to 4.50 percent-4.75 percent. Fed Chair Jerome Powell also indicated that further hikes are likely to be necessary.

Meanwhile, Williams, in the WSJ conference said that the Fed has a lot more work to do to bring inflation down and restore price stability.

“We still have work to do to get interest rates in the right place to make sure that we’re aligning supply and demand in the economy and the labor market, more broadly, and really bringing inflation down to 2 percent. Because inflation, of course, right now is 5 percent on the measure that we follow. So we still have our work cut out for us,” he said.

The US economy added strong non-farm payroll data; almost 517,000 jobs were added in January far ahead of the Street’s expectations of 193,000 jobs.

However, Williams added that decisions on rates are not triggered by only jobs data but data on wages, price inflation, what’s happening more broadly with the domestic and global economy and overall financial conditions.

“We’ll have to watch the data. We are data dependent. We’ll see how all of those pieces come together over the coming months, because the decisions will, of course, be driven by our goals of maximum employment and price stability, and what the data is telling us,” he added.

Williams also added that the Fed's monetary policy may need to stay restrictive “for a few years” in order to bring down inflation, realign supply and demand in the US economy, and pull the system out of the inflationary pressure that has built up due to massive pandemic-era stimulus programs and years of low interest rates.