New York Fed President John Williams said Tuesday inflation remains his number one concern, adding the Fed will stay the course on raising rates until the central bank achieves its 2% inflation goal.
"We will we stay the course until our job is done," Williams said in a speech at the New York Bankers Association in New York on Tuesday. "We must restore balance to the economy and bring inflation down to 2 percent on a sustained basis."
Williams said declines in commodity and goods prices are not be enough to bring inflation back down to 2%, adding the Fed will need to see inflation in the services sector come down.
"We need all the gears turning at the right pace to restore balance between demand and supply in the entire economy," said Williams. "We still have some way to go to achieve that goal."
Williams' comments came just hours after the latest inflation data showed consumer prices in January rose 0.5% from the prior month, the most since Oct. 2022. On an annual basis, prices rose 6.4% against the prior year, the slowest annual increase since Oct. 2021.
Williams said as higher interest rates work through the economy, he expects inflation as measured by the price consumption expenditures will drop to 3% this year before moving closer to 2% in the next few years.
Elsewhere on Tuesday, Dallas Fed President Lorie Logan said she didn't think the Fed should lock in a particular level at which interest rates should peak or a precise path of rates.
"When inflation repeatedly comes in higher than the forecasts, as it did last year, or when the jobs report comes in with hundreds of thousands more jobs than anyone expected, as happened a couple weeks ago, it is hard to have confidence in any outlook," Logan said in a speech at Prairie View A&M University on Tuesday. "I anticipate we will need to continue gradually raising the fed funds rate until we see convincing evidence that inflation is on track to return to our 2 percent target in a sustainable and timely way."
Logan said she would also keep a pulse on financial conditions and said the Fed should be prepared to raise rates for a longer than expected.
"We must remain prepared to continue rate increases for a longer period than previously anticipated, if such a path is necessary to respond to changes in the economic outlook or to offset any undesired easing in conditions," said Logan.
Logan reiterated that even after the Fed feels no further rates hikes are needed, the central banks needs to remain flexible to raise rates if needed in case the economy or financial conditions loosen.
As of December, the Fed penciled in rates peaking in a range of 5%-5.25%, though Williams warned last week rates could move higher if financial conditions loosen or inflation jets back up, while Fed Chair Powell hasn't ruled out raising rates above that level, either.
Following Tuesday's inflation data, markets were pricing in a better than 90% chance the Fed raises rates another 0.25% in March, bringing its target range to 4.75%-5%, according to data from the CME Group.
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