Way to go before we reach 2% inflation target: US Fed’s John Williams | Economy & Policy News

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While significant progress has been made in reducing inflation to approximately 2.5 per cent, more time is needed for the US central bank to achieve its 2 per cent inflation target, said John Williams, president and chief executive officer of the New York Federal Reserve Bank on Friday.


Speaking at the 4th Suresh Tendulkar Memorial Lecture organised by the Reserve Bank of India in Mumbai, Williams said, “Inflation is now around two and half per cent, so we have seen significant progress in bringing it down. But we still have a way to go to reach our 2 per cent target on a sustained basis. We are committed to getting the job done.”


Uncertainty will continue to define the monetary policy landscape for the foreseeable future, Williams cautioned.


“Uncertainty will continue to be the defining characteristic of the monetary policy landscape for the foreseeable future. This is especially true as we face issues like artificial intelligence, climate change, de-globalisation, and innovations in the financial system — not to mention the perennial challenges of measuring the so-called star variables such as r-star,” he said.  


Williams said that despite the best efforts of economists to understand the evolving economic environment and its implications for monetary policy, one must accept that uncertainty will continue to shape the future. The principles and lessons one has learned provide a robust foundation for monetary policy amid this uncertainty, and he was confident they will continue to serve well against future challenges.


He also said that in the current economies, monetary policy remains the dominant factor influencing inflation and achieving the inflation goals. The evidence of this is seen daily, as inflation, after rising dramatically, is now coming down towards the targets. Monetary policy continues to play a crucial role in this process. While fiscal policy does affect the economy, it is not dominating it.  


“I think fiscal dominance is one of these extreme things where, if fiscal policy is so out of control or unsustainable, it can eventually override the decisions of a central bank. In economic theory, there are very specific conditions under which this could happen. We are not in anything like that today,” he said.


“In our economies, monetary policy is very much the dominant factor driving the economy in terms of inflation and keeping our inflation goals. I think we see this every day. In every one of our economies, we’ve seen inflation, after having risen dramatically, coming down towards our targets. We’re still in a situation where monetary policy is playing its important role in achieving inflation. Our goals in fiscal policy are, of course, affecting the economy, but not in any way dominating it,” he added.

First Published: Jul 05 2024 | 5:29 PM IST

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