U.S. economic growth could fall below 1% this year and remain sluggish through 2023 as the Fed acts “decisively” to rein in inflation, New York Federal Reserve Chairman John Williams said on Friday.
In remarks prepared to deliver on a University of Puerto Rico campus, Williams did not say whether he favored a 0.75 percentage point hike at the Fed’s next meeting in July, which which several of his colleagues have already approved.
But he reiterated the increasingly strong language that US central bankers are using to characterize their determination to reduce inflation from its current multi-decade high to the Fed’s 2% target.
“Inflation is sky-high, and it’s the number one danger to the overall health and stability of a well-functioning economy,” Williams said. “I want to be clear: this is not an easy task. We must be determined and we cannot fail. »
The three-quarter point hike approved in June, the largest incremental increase in the federal funds rate since 1994, was “a critical step” in tightening monetary policy.
Minutes from the Fed’s June meeting showed policymakers aligned on the need to push interest rates to “tight” levels.
Williams said further increases will now depend on “how the economy responds to tighter financial conditions and developments in inflation, inflation expectations and the economic outlook.”
New inflation data will be out next week, but in May the consumer price index was rising at an annual rate of more than 8% and a second measure, preferred by the Fed, was rising more than 6%. %.
The economy, meanwhile, is slowing down. Williams said his outlook for growth this year is now below 1%, putting him at the bottom of Fed officials’ recent projections. A projected rebound to 1.5% next year would still leave the growth rate below trend.
This should help ease the pressure on prices. But it will also likely increase the unemployment rate, he said.
A strong jobs report in June left the unemployment rate at 3.6% for the fourth consecutive month.
Williams said he expects that to top 4% in 2023.
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