The Federal Reserve’s benchmark interest rate may have already hit its peak level, as it is now putting more downward pressure on the economy than at any time in the last 25 years, New York Fed President John Williams said Thursday.
Earlier this month, the Fed kept its benchmark rate unchanged at a level of 5.25%-5.5%.
“My assessment is that we are at, or near, the peak level of the target range of the federal funds rate,” Williams said in a speech to the Bretton Woods Committee conference in New York.
Williams said his research suggested that the stance of Fed interest-rate policy “is quite restrictive,” meaning it is slowing down the economy.
“Indeed, it is estimated to be the most restrictive in 25 years,” Williams added.
Williams is a key adviser to Fed Chair Jerome Powell.
Looking ahead, Williams said, “I expect it will be appropriate to maintain a restrictive stance for quite some time to fully restore balance and to bring inflation back to our 2% longer-run goal.”
Markets are betting that the Fed will cut interest rates before the middle of next year. The 10-year Treasury yield
BX:TMUBMUSD10Y
has fallen to 4.32%.
In his remarks, Williams forecast that the Fed’s favorite measure of inflation, the personal consumption expenditure index, would decline to around 2.25% next year before closing in on 2% in 2025.
He expects the economy to slow next year to a 1.25% annual growth rate. So far this year, the economy has grown at an average 3.2% rate.
Williams forecast the unemployment rate to rise to around 4.25% from 3.9% in October.
“All of that said, the future remains highly uncertain, and our decisions will continue to be data-dependent,” Williams said.
“The risks are two-sided, with the possibility of inflation remaining stubbornly persistent weighed again the risk of a weaker economy and employment,” Williams said.
If price pressure and imbalances persist more than he expects, “additional policy firming may be needed,” he added.
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