Interest Rate Path is Data-Dependent, says Fed's Williams

There is a strong likelihood that the United States Federal Reserve will raise its benchmark interest rate only once more in the near term, and in increments of 25 basis points, but its policy path is going to depend entirely on the results of incoming economic data, New York Fed President John Williams said on Tuesday.

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"I think that is a reasonable starting point. It was the median estimate from my colleagues that we had at the Fed's last meeting in March, in which the Fed forecast a peak in interest rates in the range of 5.00% to 5.25% at the end of March," Williams said in an interview with Trade Algo.

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During that meeting, the Federal Reserve raised interest rates by 25 basis points to a range between 4.75% and 5.00%. Despite these cautions, the Bank of England has taken a more cautious stance in the wake of recent banking turmoil, which has raised the prospect that the economy will continue to slow down at a faster pace as banks become wary about lending.

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He reiterated his comment from Monday that he did not see any signs of tightening in credit conditions, as he asserted there was still a lot of time for that to play out while cautioning that inflation still remained far higher than it should be.

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"Data has to be the driving force behind our decisions," Williams said. "The first thing that I would like to say is that one aspect we are paying attention to at this point is credit conditions, but also, are there any signs that this underlying inflation is going to decrease?"

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Moreover, he noted that the employment data for March confirmed that the employment market was still "very strong". Although inflation in goods and commodities has been on the decline, pricing pressures in other areas remain stubbornly high.

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"Inflation has not moved yet in some areas of core services, such as utilities and communications, which means we will have a hard time getting inflation back to 2% in the near future," he said. Based on the Fed's preferred measure, the inflation rate is still running at more than twice what is expected by its target rate.

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"What seems to me to be the real question is, if the policy has become too restrictive already, what are the next steps that can be taken in order to make sure it is sufficiently restrictive? Are there a few more things we need to do to get there? And, of course, that is going to be determined by the data and the outlook."