The Fed’s John Williams says charges could possibly be raised if inflation would not come down

John Williams, Chief Executive Officer of the Federal Reserve Bank of New York, speaks at an event in New York, November 6, 2019.

Carlo Allegri | Reuters

NEW YORK — New York Federal Reserve Chairman John Williams warned Tuesday that rate hikes will take a while to work their way through the economy before inflation returns to acceptable levels.

The central bank official gave no guidance on where he is steering policy but said he does not expect inflation to return to the Fed’s 2% target before the next two years. If inflation doesn’t go down, the Fed always has the option to raise interest rates.

He added that unemployment is likely to rise to a range of 4% to 4.5% from its current 54-year low of 3.4%.

“Due to the lag between policy actions and their impact, it will take some time before the [Federal Open Market Committee’s] Action to restore balance to the economy and return inflation to our 2% target,” Williams said in a prepared speech to the Economic Club of New York.

Williams spoke six days after the FOMC decided to hike interest rates by another quarter of a point to a target range of 5% to 5.25%. In its statement after the meeting, the committee hinted that it could pause rate hikes, although it said officials would consider a variety of factors when determining how to proceed.

The committee removed a key phrase from the statement that suggested further rate hikes would be appropriate. Williams, an FOMC voter, said the decision is now a matter of incoming data.

“Firstly, we haven’t said we’re done raising rates yet,” Williams told CNBC’s Sara Eisen during a Q&A session after his speech. “We will make sure we meet our targets and we will assess what is happening in our economy and make the decision based on that data.”

“I see no reason in my baseline forecast to cut rates this year,” he said, adding that more rate hikes are possible if the data doesn’t play along.

The current problems in the banking industry and their implications will play a role in Williams’ policy outlook, he said.

“I will particularly focus on assessing the evolution of credit conditions and their impact on the outlook for growth, employment and inflation,” Williams said.

Some positive signs Williams cites are a slowdown in longer-term inflation expectations and a slowdown in labor demand, which has heated up the labor market and put upward pressure on wages that have failed to keep pace with rising cost of living.

He also said congested work chains, which have been a major contributor to inflation, have “improved significantly” over time.