Monday, January 24, 2022
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    Fed Williams expects inflation to subside this year, supported by slower growth

    On Friday, New York Fed Governor John Williams said inflation would drop to about 2.5% this year, far from the Federal Reserve’s long-term target of 2%.

    “We expect inflationary dynamics to be different from previous cycles, just as the pandemic followed its own script,” Williams said in a statement to the Council on Foreign Relations.

    “We expect inflation to drop to about 2.5% this year as growth slows and supply constraints are gradually lifted,” he said. The Federal Reserve’s favorite inflation rate, the Consumer Expenditure Price Index, rose 5.7% over the year to November, the fastest rate since 1982. Williams said inflation will drop to nearly 2% in 2023.

    Williams is a major ally of Federal Reserve Chairman Jerome Powell. While other Fed officials support initial interest Rate hike from March, Williams was more cautious, just expecting the Fed’s benchmark rates to gradually rise from the current very low levels to more normal levels.

    The Federal Reserve has raised rates three times this year. In December, the central bank planned to end the purchase of government bonds and mortgages in mid-March.

    Williams said in a statement that he expects economic growth in 2022 to slow from an estimated 5.5% last year to an annual rate of 3.5%.

    “The current wave of Omicron is expected to slow growth in the coming months as people withdraw from contact-intensive activities again,” Williams said.

    The new Omicron COVID variant temporarily prolongs and intensifies labor supply challenges and supply chain bottlenecks.

    “But when the Omicron wave subsides, the economy should return to a solid trajectory and these supply constraints on the economy should decline over time,” he added.

    At the same time, Williams said he expects the unemployment rate to drop further from 3.9% in December to 3.5% this year.

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    Friday was lower due to concerns about the impact of higher interest rates on the economy.

    Fed Williams expects inflation to subside this year, supported by slower growth

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    The post Fed Williams expects inflation to subside this year, supported by slower growth appeared first on Eminetra.

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