New York Fed President John Williams subverts market expectations of rate lowering next year

On Tuesday, John Williams shared his thoughts on interest rates in an interview, stating that their levels will continue to rise, and the process will go on until the inflation is subdued. Although Williams didn’t mention any specific levels or directions, he said that it’s necessary for real interest rates to remain positive to reduce the inflation.

John Williams, Jerome Powell and Lyle Brainard form the Fed’s core group for thinking. Williams has recently backed Powell’s statements by confirming that he shares the same opinion on monetary policy, and he is also in the “higher than longer” camp.

During his live interview, Williams talked about some time the Fed has to reserve for its measures of restriction, and that shouldn’t be a brief period, after which they are going to change the policy direction.

This point of view was made known soon after the same expression “some time” was used by Jerome Powell to talk about his benchmark rates expectations. In his speech at Jackson Hole, Powell additionally emphasized the history lessons on the hazards of premature loosing of policies.

Williams said that it’s necessary for real rates to reach the levels above zero, as the current demand is significantly higher than the supply. To reach this goal, the country needs restrictive policies to slow down the demand, as said by the New York Fed President.

According to the information received from CME Group, the markup at the moment is aimed at the Federal Open Market Committee, which is responsible for rate setting, to support a September hike of three-quarters of a point, which would be the third such hike in a row, with a subsequent November rate hike of a half-point and the following December hike of a quarter-point. After that, markets suspect to see some softening in the second half of the following year. 

The increasing of interest rates resulted in some tightening in the financial sphere, which was called encouraging by John Williams. At the same time, he added that it requires more than that to start discussing changes in policy.