John C. Williams, president and CEO of the Federal Reserve Bank of New York speaks to the Economic Club of New York, March 6, 2019.
Lucas Jackson | Reuters
The Federal Reserve raising interest rates next year would signal the central bank feels good about the country’s economic recovery, New York Fed President John Williams said Friday.
“I go into next year feeling [like] the baseline outlook is a very good one. Therefore, actually raising interest rates would be a sign of a positive development in terms of where we are in the economic cycle,” Williams said in an interview with CNBC’s Steve Liesman on “Squawk Box.”
“I’m pretty optimistic that we’re seeing really strong improvements in the labor market. You’re seeing the unemployment rate come down quickly,” Williams added.
His comments came after the Fed signaled earlier this week that it sees as many as three rate hikes in 2022. The Fed cut rates to near-zero levels in March 2020 as part of its efforts to support the economy at the onset of the Covid-19 pandemic. The central bank also said this week it would aggressively dial back its bond-buying program.
That rate forecast comes during an increase in U.S. inflation.
The consumer price index — which tracks the price of everything from cars to food to rent — surged 6.8% in November on a year-over-year basis. That marks its fastest acceleration since 1982. The producer price index — another inflation measure that tracks wholesale prices — increased last month by 9.6%, its fastest pace on record.
“We’re very focused on inflation; it is obviously too high right now,” Williams said. “We want to make sure inflation comes back down to our 2% longer-run goal.”
However, Williams noted that the Fed doesn’t need to further speed up the tapering of its asset purchase program to temper the recent inflation surge.
On Wednesday, the Fed announced it will be buying $60 billion in bonds per month starting in January. That’s half of what it was buying prior to November. It also puts the Fed on track to wrap up its program by March.
“I don’t see that there’s any real benefit to try to speed it up further,” Williams said. “We like to do things in a way that’s very carefully studied, very carefully communicated … without creating disruption in markets.”