Fed's task to tame inflation difficult amid "tremendous" amount of uncertainty - Williams

[May 10, 2022]  (Reuters) - The U.S. Federal Reserve's aim of bringing inflation down to its goal without derailing the economy is challenging but doable amid heightened uncertainty on the path of price pressures caused by the war in Ukraine and COVID pandemic, New York Fed President John Williams said on Tuesday.

"The ongoing pandemic and war in Ukraine bring a tremendous amount of complexity and uncertainty," Williams said in prepared remarks to an economics conference organized by Germany's central bank in Eltville am Rhein, Germany. "We will need to be data dependent and adjust our policy actions as circumstances warrant."

Williams added that the Fed's aim to bring inflation back down to 2% while maintaining a strong economy was difficult "but not insurmountable" as it moves to bring interest rates expeditiously to more normal levels.

The central bank last week raised its benchmark overnight lending rate by half a percentage point to a target range between 0.75% and 1%, and has since signaled similar-sized hikes are likely at its next two policy meetings in June and July.

Fed policymakers are battling inflation at a 40-year high and have pivoted to a more aggressive stance in recent months as inflation pressures, once seen as transitory, have persisted even as the worst of the pandemic passed and the economy reopened.

Russia's invasion of Ukraine has driven up food and energy prices and more lockdowns in China to tamp down COVID cases there has kept the supply chains of other goods snarled.

That said, Williams sounded a note of optimism on the Fed's mission, explaining that the Fed's policy moves would dampen demand in two of the most imbalanced sectors of the economy -- durable goods and housing -- as well as turn down the heat in a "sizzling" hot jobs market.

Williams said he sees the Fed's key inflation gauge, the core personal consumption expenditures price index, at almost 4% at the end of this year, down from 5.2% today, before falling to around 2.5% in 2023. A U.S. government report on Wednesday is expected to show consumer price inflation slowed slightly in April, which would be a welcome sign that inflation has peaked.

The New York Fed chief also said he expected the factors causing supply chain issues to begin to resolve themselves so that some of the central bank's rebalancing would be achieved through increases in supply rather than aggressive rate moves.

(Reporting by Lindsay Dunsmuir and Francesco Canepa; Editing by Chizu Nomiyama)

 

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