Other leading economists and global central bankers expressed similar concerns about the potential strength of inflation, including during panels at the World Economic Forum in Davos, Switzerland this week. Thomas J. Jordan, head of the Swiss National Bank, he warned on Friday that it may be a problem to get inflation back to normal.
“It’s going to be much more difficult to get inflation from 4 percent to 2 percent,” Jordan said. Many central banks, including the Fed, target 2 percent annual inflation.
And Lawrence H. Summers, a Harvard economist and former Treasury secretary, told the same panel in Davos that markets are surprisingly single-minded in the way they think about how interest rates will be shaped. Many investors expect the Fed to raise rates two more times before cutting them before the end of the year, and expect rates to remain low for the long term.
“I see many, many more scenarios where rates end up higher than what prices are currently than scenarios where rates end up lower than what prices are currently,” he said. “That’s why I’m a little bit surprised by the market’s forecast of what’s going to happen.”
The Fed’s Mr. Williams said that while inflation is still too high and the economy is stronger than expected, the Fed is past a stage where it was mostly focused on the pace of rate hikes, with the focus now on how high borrowing costs would eventually rise .
“It’s not the speed that’s important at the moment – it’s really what level we’re going to get to,” Mr Williams said. “And then it’s really important to move on to the next phase, how long do we have to keep it up.”
He acknowledged that it’s a challenge to try to understand what’s going on in the economy, and especially with rising prices.
“I don’t think any traditional rules based on historical experience apply,” Mr. Williams said, explaining that recent inflation was “so extraordinary.”