The Federal Reserve will likely continue to raise interest rates to combat inflation.
“Inflation is still too high, and we will use our monetary policy tools to restore price stability,” Federal Reserve Bank of New York President John Williams said on Wednesday, according to Reuters.
The Fed delivered its 9th straight interest rate hike in March and is expected to raise interest rates by another 25 basis points in its meeting in May, according to Reuters.
Williams said the banking sector is starting to stabilize following emergency lending from the Fed following the second-biggest bank collapse in U.S. history.
“Conditions in the banking sector have stabilized, and the banking system is sound and resilient,” Williams said.
The personal consumption expenditures (PCE) price index, which tracks inflation, stood at 5% in February, down from 5.3% in January, according to the Commerce Department.
“The most recent data indicate that this trend of slowing inflation is continuing,” Williams said, according to Bloomberg.
Williams also noted indications of “gradual cooling in the demand for labor,” according to MarketWatch.
The Fed released its Beige Book, more formally called the Summary of Commentary on Current Economic Condition, on Wednesday, the first since Silicon Valley Bank’s collapse.
The report noted that “overall economic activity was little changed in recent weeks” but said that several districts have seen banks tighten lending standards due to uncertainty surrounding liquidity in the sector.
“It is still too early to gauge the magnitude and duration of these effects, and I will be closely monitoring the evolution of credit conditions and their potential effects on the economy,” Williams said, per MarketWatch.
Williams said a pause is expected after the upcoming interest rate hike, according to Bloomberg.
Williams expects inflation to ease to 3.25% in 2023 and for it to hit the intended 2% target within two years, according to Reuters.
Contrary to Fed economists who believe a “mild recession” will occur later this year, Williams is not predicting a recession, per Reuters.
