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Oct. 3, 2022, 3:27 p.m. EDT

Fed’s Williams sees steep decline in inflation ahead

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By Greg Robb

Cooling global demand and steady improvements in supply should result in falling rates of inflation for goods over the next year, New York Fed President John Williams said Monday.

“These factors should contribute to inflation declining to about 3% next year,” Williams said in a speech to the U.S. Hispanic Chamber of Commerce in Phoenix.

Inflation, as measured by the Fed’s favorite personal consumption expenditures (PCE) price index, was running at a 6.2% annual rate in August.

Bringing down underlying inflation enough so the Fed hits its 2% annual inflation target will take longer, Williams said.

The Federal Reserve has already raised its benchmark rate by 300 basis points from close to zero in March, a historically rapid pace. In addition, the central bank has penciled in further hikes and pointed to a “terminal” rate in the range of 4.5% to 4.75% for next year.

Williams said the tighter monetary policy is already having some effects. The housing market has already slowed, and there are signs of slowing in consumer and business spending, Williams said.

“Tighter monetary policy has begun to cool demand and reduce inflationary pressure, but our job is not yet done,” he said.

“It will take time, but I am fully confident we will return to a sustained period of price stability,” Williams added.

There was no mention of a risk of recession in Williams’ remarks. Instead, he said that economic growth should be flat this year and only grow modestly next year.

Stocks /zigman2/quotes/210598065/realtime DJIA +2.18% /zigman2/quotes/210599714/realtime SPX +3.09% were sharply higher on Monday after a brutal September. The yield on the 10-year Treasury note /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -4.15% fell to 3.65%.

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