John Williams, Speech: Price Stability, The Foundation for a Strong Economy

“The economy experienced a rapid recovery from the pandemic last year, but I expect growth to slow considerably this year as the waning effects of fiscal stimulus, less favorable financial conditions, and slower growth abroad all weigh on our economy. Specifically, I currently expect real GDP growth in the United States to be below one percent this year, and then to rebound slightly to around 1-1/2 percent next year. With overall growth slowing to below its trend level, I expect the unemployment rate to move up from its very low current level, reaching somewhat above 4 percent next year.”

“While monetary policy actions won’t directly reduce fuel or food costs, they will reduce overall inflationary pressures that arise in an economy where demand exceeds the available supply, like we are experiencing today. Higher interest rates reduce demand for goods and services. This is especially true for those sectors that are most sensitive to interest rates, such as durable goods and housing, where we have seen the greatest imbalances between demand and supply.”

“The Committee is strongly committed to returning inflation to its 2 percent objective. In determining how quickly and how high to raise the rates in the future, we’ll watch closely to see how the economy responds to tightening financial conditions and how inflation, inflation expectations, and the economic outlook evolve. As always, we will be data-dependent and nimble in our approach.”

“With tighter monetary policy in place, supply and demand will be brought back into balance, and inflation will return to our 2 percent longer-run goal. This may take some time and may well be a bumpy road.”

“I’ll close with this: Inflation is far too high, and price stability is absolutely essential for a strong economy. We have the tools to get the job done and are one hundred percent committed to achieving our goals.”