EURUSD: Fed official: Interest rates will stay limited for a Interest rates are "estimated to be at their lowest level in 25 years," Williams told the New York Fed's Bretton Woods Committee meeting. "I think it is appropriate to maintain a hawkish stance for some time to fully restore balance and return inflation sustainably to our long-term target of 2%," he said.
The Fed is expected to keep interest rates on hold at its next meeting, giving it time to assess the economy after raising rates sharply from near zero in March 2022 to over 5% in July. .
At the same time, expectations are rising in the bond market that the Fed's tightening cycle will come to an abrupt end with its first rate cut in May.
"There's not a lot of sleep deprivation" given market expectations, Williams said, adding that any rate cuts would depend on inflation and how the economy progresses.
He expects inflation to continue falling toward the 2% goal, and expects the Fed's price index to fall more than 2% next year and reach the target by 2025. Government figures on Thursday showed the PCE index fell to 3% in October.
"We have taken a limited stance and things are moving in the right direction. We can now assess whether we need to do anything more."
Still, the New York Fed president said if price pressures persist longer than expected, "additional policy tightening may be necessary," and Williams, like his colleagues, believes the current political path is not sufficiently restrictive. He emphasized the need to continue monitoring the data to assess whether this is the case. .
So far, fourth quarter data shows signs of a significant decline in economic activity. Data released Thursday showed U.S. consumer spending fell in October compared to the previous month as inflation continued to slow. Inflation-adjusted personal spending rose 0.2% last month and 0.3% in September, according to the U.S. Bureau of Economic Analysis.
The report also noted that the core PCE price index increased by 0.2%. The index rose 3.5%, its lowest level since 2021.
Although he expects economic growth to remain below trend next year, he is "quite positive." Economists generally expect growth to be around 2%.
