Inflation target vital to achieve stable prices: Fed President Williams

Inflationary outlook: John Williams, President of the New York Federal Reserve Bank, has underlined the crucial role of the 2 per cent inflation target in achieving price stability. Addressing audience at Stanford University's Hoover Institution, Williams stressed on the significance of transparency and clear communication, and stated that the importance of setting explicit, numerical longer-term inflation targets and implementing appropriate measures to support their attainment. 

Williams highlighted that such actions are vital for anchoring inflation expectations, which, in turn, contribute to maintaining inflation at its target level.

Government Policies 

Commenting on the Fed's ongoing efforts in addressing the elevated inflation levels over the past two years, Williams acknowledged the aggressive interest rate hikes undertaken since March 2022, a pace unseen in four decades. Even as inflationary pressures have moderated since their peak in mid-2022, they persist above the Fed's 2 per cent target, which has been a cornerstone of its policy approach since 2012. Going forward, Williams indicated that a comprehensive review of the central bank's policy framework is planned for later this year, with various stakeholders advocating for significant changes.

With a cautious optimism considering the global economic uncertainty Williams said underpinnings and practical experience guiding efforts to restore price stability pave the way for sustained economic prosperity. Emphasising the Fed's commitment to achieving its 2 per cent longer-term inflation goal, he affirmed the institution's readiness to take necessary actions.

Regarding short-term borrowing costs, Fed policymakers recently resolved to maintain rates within the range of 5.25 per cent to 5.5 per cent, a stance unchanged since July 2023. Williams refrained from providing updated perspectives on potential interest rate cuts, aligning with the broader sentiment among policymakers, who have signaled a reluctance to reduce rates until there is greater confidence in inflation moving sustainably toward the Fed's target.

(With Reuters input)