Fed’s No. 3 Official Turns Hawkish: Inflation Remains Too High, Action Needed to Bring It Back to 2% Promptly

The Federal Reserve’s “number three,” New York Fed President John Williams, has sent a hawkish signal, clearly stating that inflation remains excessively high, that there is still work to be done on monetary policy adjustments, and emphasizing the need for further action to ensure that inflation returns to the 2% target in a timely and sustained manner.

According to a Bloomberg report on November 13, Williams said at an event in New York on Wednesday evening (November 12 local time), “Inflation is too high, and the latest data still shows inflation remains elevated.” He further noted, “Over time, we need to take action to ensure that inflation returns to our 2% target in a timely and sustained way.” He also emphasized, “We still have plenty of work to do to adjust monetary policy to the appropriate place.”

Williams’ comments this time are more explicit than before. Previously, he expressed support for the Fed to gather information before determining policy, but this speech further adds a clear signal of “the need for further action.” Given that Fed Chair Kevin Warsh has recently spoken less publicly about the policy outlook, Williams’ remarks, as a permanent voting member of the FOMC, have drawn close attention from the market.

Data signals are clear; inflation’s stubbornness stands out

Williams stated that the Fed reached a consensus in September to evaluate upcoming data for a clearer understanding of the “current situation,” and to make policy decisions at the next meeting.

“I think the data are sending us very clear signals—the economy is strong, the labor market continues to strengthen, and inflation is showing its stubbornness.”

Wallstreetcn article previously mentioned that inflation data released this Tuesday showed that the US core CPI in October, excluding food and energy costs, rose 0.3% month-on-month, exceeding expectations for the third consecutive month.

The economy is strong but not unbalanced; employment constraints cannot be ignored

Williams’ assessment of the current economic situation is generally optimistic. “The US economy is not only continuing to grow, it actually appears to be strengthening,” he said. “We also see this in the labor market. But we haven’t seen signs of the economy overheating, nor have we seen signs of the economy being unbalanced in any way.”

At the same time, Williams has also set boundaries for tightening policies. He emphasized that the Fed must “ensure that we do not cause unnecessary damage to the maximum employment mandate”, balancing anti-inflation actions with labor market stability.

A flurry of hawkish signals from multiple officials

Williams’ comments are part of a recent surge of hawkish signals from Fed officials.

Since the start of this week, several Fed officials—including Dallas Fed President Logan, Fed Governor Waller, Kansas City Fed President Schmid, and Fed Governor Bowman—have all delivered hawkish signals in their speeches, suggesting that US inflationary pressures remain stubborn and that monetary policy still needs to be further tightened.

Among them, Fed Governor Waller put forward a more aggressive view on the pace of rate hikes—if inflation remains high, a 50-basis-point hike should be implemented in December, and the previous “three preventive cuts” should be reversed.

Currently, interest rate futures show that investors expect the Fed to raise rates at each of the next three meetings.