John Williams, Interview: WSJ

Fed Funds

“The vast majority of my colleagues put in the funds rate ending this year between 5 and 5 ½ percent, with quite a few at 5 to 5 ¼ – 5 ¼ to 5 ½, I mean, my view is that still seems a very reasonable view of what we’ll need to do this year in order to get the supply and demand in balance, and bring inflation down.”

“I think there is, you know, clearly a lot of uncertainty around the inflation outlook, and there’s definitely scenarios where inflation ends up being more persistent for various reasons. Maybe we don’t see a continued reduction in some of the goods prices we’ve seen recently, or maybe some of these services prices stay elevated. In that case, we would have to – you know, that would be a situation where we’d have to have somewhat higher interest rates in order to get that sufficiently restrictive stance of policy that we’re looking for to make sure that we’re bringing inflation back to 2 percent.”

“To me, the important thing is we need a sufficiently restrictive – we need to retain a sufficiently restrictive stance of policy. We’re going to need to maintain that for a few years to make sure we get inflation to 2 percent. And then eventually, over time, you know, we’ll get interest rates, you know, presumably back to more normal levels.”

25bp Rate Hike

“Now since then we’ve been able to slow that pace of increase as we watch the economy, as we know – you know, we’re likely to be closer to where this peak interest rate is going to be this year. We can take smaller steps still get to whatever we need to get to. But I think these 25-basis-point steps allow us to both adjust policy based on the new information and what’s going on and get us to our goal as we need to.”

“Obviously, if the situation changed, you know, significantly, we would have the ability to move quicker than that or adjust course. But right now, I think the 25-basis-point increase that we just put into place seems like the right size to adjust policy, at least given what I’m seeing today.”

Lags in Monetary Policy

“When you think about the lags in monetary policy, I’m typically asked: How long does it take for your action to affect the economy? And of course, that’s not really – there’s no one answer. I mean, the financial markets respond in minutes. Some sectors, like the housing sector, tend to respond more quickly because they’re so sensitive, in our economy, to mortgage rates. And then over time it takes about a year or so to get the peak effect on the broader economy.”