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John Williams, president and chief executive officer of the Federal Reserve Bank of New York, said on Thursday that inflation is still too high but could start slowing down later this year. In April, the inflation rate reached 3.4%, far above the Fed’s stated 2% target.
Williams’s comments come as markets are still looking for signals on whether the central bank will cut interest rates this year.
On Thursday, the Dow fell 400 points as consumer sentiment and GDP growth remain sluggish. On Friday, investors will keep on eye out for April’s Personal Consumption Expenditures Price Index (CPE). The index measures the prices that U.S. residents pay for goods and services and is one of the key indicators the Fed uses when weighing whether to raise or lower interest rates.
Williams told CNBC’s Sara Eisen at the Economic Club of New York that he expects PCE inflation to fall to 2.5% this year before hitting 2% in 2026.
Williams wasn’t as transparent when asked if he expects the Fed to cut rates this year.
“The honest answer is, I just don’t know,” Williams said. “I do think that monetary policy is restrictive and is bringing the economy a better balance. So I think at some point, interest rates within the US will, based on data analysis, eventually need to come down. But the timing will be driven by how well you achieve your goals.”
However, William did give a timeline for when he expects inflation to start falling.
“With the economy coming into better balance over time and the disinflation taking place in other economies reducing global inflationary pressures, I expect inflation to resume moderating in the second half of this year,” Williams said. “But let me be clear: Inflation is still above our 2% longer-run target, and I am very focused on ensuring we achieve both of our dual mandate goals.”
-Vinamrata Chaturvedi contributed to this article.