John Williams, Interview: WSJ Live Q&A

“So if you think about next year, if inflation is somewhere between two and a half and 3%, a lot lower than now, but that’s kind of a forecast that I think is reasonable. You’re thinking about having interest rates that are well above that, because it’s the interest rate minus the inflation rate tells you what the real interest rate is. So we’re so quite a ways from that. And I think that to me, that’s one of the benchmarks. We need to get the interest rate relative to where inflation’s expected to be over the next year into a positive space and probably, even higher than the longer run neutral level, which I think is around a half a percent on real interest rates.”

“So when you look at the analysis we’ve done about what this long run neutral interest rate is, it’s always in terms of a real interest rate for the reasons we just discussed. And again, a typical estimate of that is say something like a half a percent. And so if you add 2% inflation, that would be the two and half that you see discussed as a longer run neutral nominal interest rate because of Fed’s target is them 2% inflation the longer run.”

“Well, I think currently they price in about one rate cut next year right now. And that’s going to depend on where things are. But honestly, from my perspective, right now, I see us needing to hold this a policy stance, pushing inflation down. Bringing demand and supply into alignment is going to take longer than we’ll continue through next year. So that’s my view right now. And I think it’s based on what I’m seeing in the inflation data, where I’m seeing in the economy. It’s going to take some time before I would expect it to see any adjustments of rates downward.”