Fed rate hike 'not urgent', says John Williams; Austan Goolsbee warns against 'playing with fire'

New York Fed President John Williams said the Federal Reserve has time to assess incoming data before another rate hike, which he expects before year-end, while Chicago Fed President Austan Goolsbee warned that prolonged above-target inflation risks requiring a policy response to persistent supply shocks.

“With the policy action we took at our September meeting, there is no need for urgency,” Williams said in prepared remarks for an event at the University at Buffalo in New York.

Waiting for more data before deciding the next step “should provide greater clarity” about the economy’s performance, he said.


For live updates on US Markets, click here

“If the economy evolves in a manner broadly consistent with my forecast, one further upward adjustment of the federal funds target range may be appropriate late this year to support a timelier return of inflation to target,” Williams said. He added that "this is just my forecast, and time and the totality of the data will tell.”

Williams’ remarks came as financial markets expected the Fed to follow its September rate increase with further tightening before year-end. The central bank raised its overnight target range by a quarter-percentage point to 3.75%-4.00%.

Futures markets are pricing in a strong chance of another increase in October, an expectation Williams appeared to temper by emphasising that policymakers need not act urgently.

With the economy expanding robustly and the labour market remaining resilient, Williams said monetary policy could focus primarily on curbing price pressures.

“It is imperative that we return inflation to our 2% target on a sustained basis,” Williams said. “To do so, we must make certain that adverse inflationary disturbances do not become entrenched, and that any second-round effects on inflation remain muted.”

The Fed has been raising rates to combat inflation, which has exceeded its 2% target for more than five years. Price pressures have intensified this year because of President Donald Trump’s trade tariffs and surging energy costs linked to the Middle East war.

Fed officials are increasingly concerned that inflation may not return to target quickly enough and that further action could be required to prevent persistently high price growth from becoming accepted as normal.

Williams said investment in artificial intelligence was also contributing to inflationary pressure. Tariff-related pressures, however, had largely eased, provided the administration did not impose fresh import-tax increases.

He expects inflation to end the year at around 3.5% before moderating next year and returning to the Fed’s target in 2028.

Williams also projected economic growth of 2.25% this year. He said immigration trends, an ageing workforce and modest productivity would limit the economy’s growth potential. He expects the unemployment rate to stand at 4% next year.

Goolsbee warns inflation overshoot is “playing with fire”

Chicago Federal Reserve President Austan Goolsbee said on Tuesday that allowing inflation to remain above the central bank’s target for 5½ years is “playing with fire,” adding that policymakers may need to respond to supply shocks with lasting effects.

“It’s an unpleasant situation... (but) I think we have to consider responding to those persistent shocks,” Goolsbee added further.

Goolsbee described himself as one of the Fed’s more optimistic policymakers regarding the expected path for interest rates. However, he said the central bank needed evidence that price pressures were easing before considering rate cuts.

Before lowering rates, “we’ve got to get some evidence that inflation is coming back down, that these things that are supposed to be temporary are in fact going away,” he said.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)