John Williams, Speech: Restoring Balance

“I expect it will be appropriate to raise the target range at our upcoming meeting in March. Once the interest rate increases are underway, the next step will be to start the process of steadily and predictably reducing our holdings of Treasury and mortgage-based securities, which had grown significantly as a result of the purchases that began in March 2020. I foresee this process getting started later this year.”

“Taken together, these two sets of actions steadily raising the target range for the federal funds rate and steadily bringing down our securities holdings—should help bring demand closer to supply. In fact, even though we haven’t done either of these things yet, financial conditions have already responded based on the expectation of Fed action. For example, medium- and longer-term Treasury yields and fixed-rate mortgage rates have risen close to their December 2019 levels.”

“My forecast for the U.S. economy is for real GDP to grow a bit below 3 percent this year, for the unemployment rate to end the year around 3-1/2 percent, and for PCE price inflation to drop back to around 3 percent, before falling further next year as supply issues continue to recede.”