Fed's Williams says inflation is still too high

Inflation is still too high and bringing it back to 2% will require action over time from the central bank, New York Federal Reserve (Fed) President John Williams said on Friday. 

Selected remarks

Economy resilient and growth robust. 

US economy strengthening but not overheating. 

Inflation remains too elevated. 

Inflation remains stubbornly persistent and elevated. 

Central bank has maintained consistent pace of gathering data. 

Central bank will have to act over time to bring inflation back to 2%. 

Central bank still has work to do to reach right monetary policy stance. 

Monetary policy aims at inflation, not price levels. 

Attempting to reduce overall price levels may cause poor economic conditions. Market response

Williams maintains hawkish tone as resilient US economy faces elevated inflation

A 7/10 reading on the FXS Speechtracker, compared with a historical average of 6.1/10, placed Fed’s Williams moderately on the hawkish side and indicated a firmer policy message than the established baseline. His description of the US economy as “resilient” and “robust”, set against inflation that remains “stubbornly persistent” and “too elevated”, suggests the Federal Reserve regards continued economic strength as grounds for retaining a tightening bias. Williams also distinguished between targeting inflation and targeting the overall price level, cautioning that efforts to force prices lower could harm economic conditions. The message therefore centres on returning inflation to 2% over time, rather than seeking outright deflation.

Despite the relatively firm tone registered by the FXS Speechtracker, perceived hawkishness eased slightly: the FXS Fed Sentiment Index fell 0.08 points to 147.47. That reading remains comfortably above the neutral 100 threshold, leaving the Federal Reserve firmly in hawkish territory. Nevertheless, the small decline suggests a more measured approach to further policy tightening that would support the US Dollar.

US Dollar edges higher

The US Dollar Index (DXY) is up 0.05% at around 103.23 at the time of writing.