By Matt Grossman
HARTFORD, Conn.-- New York Fed President John Williams said that he expects inflation to continue cooling toward the central bank's 2% target this year, adding that he won't be satisfied until the goal is reached.
Wednesday morning's inflation report brought reassuring signs that price pressures cooled through the end of 2024, but the new figures look set to leave the core version of the Fed's preferred inflation gauge well above target through December.
Inflation has made significant progress since it peaked in 2022, but the Fed won't be satisfied without a further downtrend, Williams said.
"You want to see inflation move from where it is today ... steadily moving toward the 2% goal," Williams said at a Connecticut business conference Wednesday. "Two percent inflation on a sustained basis is something I absolutely want to see happen."
His remarks mark one of the last opportunities for a top Fed official to share views on the monetary-policy outlook ahead of the central bank's first 2025 meeting, scheduled for the last week of January. Meetings are preceded by a week-and-a-half blackout period that forbids public comments by Fed policymakers.
After the central bank cut interest rates by a percentage point over its final three meetings of 2024, investors widely expect the Fed to leave rates unchanged in January. Williams said with the economy in better balance, the central bank can afford to take its time.
"My personal view is monetary policy now, with the actions we took last year, we got it in a very good position," Williams said. "We can take the time to analyze the incoming data."
Traders' next question is whether the central bank will return to easing rates later this year. Some Wall Street economists have projected that given inflation's stubborn persistence, December's rate cut will be the last for the foreseeable future. That view gained some backing after last week's jobs report showed that the unemployment rate declined to 4.1%, soothing concerns that the labor market is deteriorating.
A handful of other Fed officials who share responsibility for policy have voiced more skepticism of further rate cuts in recent weeks.
Wednesday's inflation data helped push investors back toward expectations of at least some further easing this year. The core version of the consumer price index, which excludes volatile food and energy prices, rose by 0.2% in December, lower than the 0.3% that economists polled by The Wall Street Journal had expected. In futures markets, bets shifted to reflect a roughly 15% probability that the Fed holds rates steady for all of 2025, down from about 25% before the inflation data.
Yet the inflation numbers aren't flashing the all-clear. Crunching this week's new price data, most Wall Street economists think that the core version of the personal consumption expenditures price index, the Fed's favored way to track inflation, will hold steady at a 2.8% rate over the 12 months through December, roughly unchanged for a third straight month.
Williams said his conclusion from a broad range of indicators is that the gradual process of cooling down inflation is still under way.
"The process of disinflation remains in train," Williams said. "Looking ahead, I expect inflation to gradually decline toward our 2 percent goal in the coming years," he said.
Some Fed watchers have questioned why the central bank continued cutting rates late last year and penciled in more 2025 cuts without seeing more progress on bringing down core PCE inflation.
Williams said that although overall demand in the economy has increased, the economy's ability to produce and supply goods and services has grown even faster, thanks to an expanding workforce and greater productivity.
That means that above-trend economic growth can proceed without necessarily driving prices even higher, Williams said.
"The economy has been able to expand at a faster pace than we saw before the pandemic, without creating inflationary pressures," he said.
Write to Matt Grossman at matt.grossman@wsj.com
(END) Dow Jones Newswires
01-15-25 1406ET
