Federal Reserve Bank of New York President John Williams said officials have not completed their aggressive tightening campaign to reduce stubborn price pressures.
"With inflation still high and indications of continued supply-demand imbalances, it is clear that monetary policy still has more work to do to bring inflation down to our 2% goal on a sustained basis," Williams said Thursday in prepared remarks for an event in New York with the Fixed Income Analysts Society, Inc.
Fed officials lifted rates by a half-point in December, slowing down the pace of their moves following four 75 basis-point increases. The rate hike brought the target on the Fed's benchmark rate to a range of 4.25% to 4.5%, up sharply from near-zero levels last March.
Investors expect the US central bank to raise rates by a quarter point at its next meeting on Jan. 31 - Feb. 1, followed by another similar increase in March, according to pricing of futures contracts. Several Fed officials speaking in recent days have endorsed using smaller 25 basis-point rate increases as a way to move more cautiously as they approach the end point for interest rates.
Williams did not specify in his remarks how high he expects rates will need to go to calm price gains, or what size move officials should take when they meet in two weeks.
The New York Fed chief said taming inflation will likely require "below trend" economic growth and a softening of the labor market. "But restoring price stability is essential to achieving maximum employment and stable prices over the longer term, and it is critical that we stay the course until the job is done," he said.
His remarks echoed a speech made earlier Thursday by Fed Vice Chair Lael Brainard titled "Staying the Course to Bring Inflation Down."
Policymakers see rates rising to 5.1% by the end of this year, according to median quarterly projections released by the Fed last month. Officials say they expect to hold rates at restrictive levels for some time to allow their actions to travel throughout the economy.
Williams also noted that the central bank's balance sheet reduction plan is going smoothly and the Fed will keep shrinking holdings of mortgage-backed securities and Treasury securities as planned.
Answering questions after the speech, Williams said it made sense to slow the pace of rate increases as officials got closer to the end of their tightening campaign. But he stressed that the ultimate peak for rates would be dictated by the data.
"I think what's important here is not what happens at each meeting but I think we've still got a ways to go," he said. "This is a period where we're getting a lot of new information."
