NY Fed’s John Williams flags need to gather more information on inflation risks before rate decisions

Federal Reserve officials are weighing the inflationary risks from strong economic activity and the rapid expansion of artificial intelligence infrastructure, even as they signal the need for more data before determining the next steps on interest rates, Bloomberg reported.

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New York Fed President John Williams said inflation remained too high, although other indicators were not yet pointing to broader concerns. Speaking at an event hosted by the European Central Bank in Frankfurt on Friday, he backed the Fed’s position that policymakers should gather more information before deciding the appropriate course for monetary policy.

“Inflation is absolutely too high,” Williams said, while noting that wage growth remained consistent with the central bank’s 2% inflation target and inflation expectations were well anchored.

Fed weighs inflation against economic resilience

Williams said monetary policy had an important role in preventing temporary price shocks from spreading into broader or more persistent inflation.

Also Read: Federal Reserve rate hike bets strengthen as US jobs growth beats estimates

“Our FOMC statement last meeting, I think, captures correctly that this is an appropriate time to accumulate more information to help us determine what the appropriate stance of policy is to make make sure we achieve a timely return to our 2% target,” he said, according to the Bloomberg report.The Fed held interest rates steady at its previous meeting after raising its benchmark rate by 25 basis points in September to a range of 3.75%-4%. Policymakers have since emphasised the need for additional information while keeping the possibility of further rate increases open, Bloomberg reported.

The central bank’s preferred inflation gauge, the personal consumption expenditures price index, rose 3.6% in September from a year earlier. Underlying inflation measures that exclude food and energy also increased. Meanwhile, the US economy expanded at its fastest pace in a year in the quarter ended September.

AI infrastructure raises fresh inflation concerns

Separately, St. Louis Fed President Alberto Musalem warned that the rapid build-out of AI infrastructure could add to near-term inflationary pressures, Bloomberg reported.

“When I look at inflation, excess inflation today, it’s coming both from negative supply shocks related to the Middle East and demand forces coming related to the AI build,” Musalem said.

While acknowledging AI’s potential to improve productivity over time, he cautioned against shaping current monetary policy around benefits that may take years to materialise.

“We need to make monetary policy for the economy of the day,” he said. “We cannot make monetary policy for the economy as it may be five years from now.”

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)