Yahoo Finance Fed's Williams: 'Magnitude and duration' of bank crisis impacts uncertain
New York Fed President John Williams said Friday inflation remains a top concern and that he's carefully watching credit conditions in the wake of a bank crisis that saw three U.S. banks fail this month.
"Stresses in parts of the banking system are likely to result in a tightening of credit conditions that will in turn reduce spending by businesses and households," Williams said in a speech at Housatonic Community College in Bridgeport, Connecticut.
"The magnitude and duration of these effects, however, is still uncertain."
Williams said the Fed's policy decisions will be driven by incoming economic data.
Hotter reads on inflation and the job market in the first two months of the year led the Fed to raise rates by a quarter percentage point last week, despite bank failures that sent shockwaves through the financial sector and markets.
"I will be particularly focused on assessing the evolution of credit conditions and their effects on the outlook for growth, employment, and inflation," he said.
Williams said he expects inflation to decline to around 3.25% this year, before moving closer to the Fed’s goal in the next two years.
Inflation remains more than a full percentage point above the level Williams expects to prevail by year-end.
The Fed’s preferred measure of inflation — the personal consumption expenditures price index excluding volatile food and energy prices — climbed 4.6% in February from a year earlier, down from 4.7% the prior month. On a month-to-month basis, prices rose 0.3% compared with January's revised 0.5% gain.
Williams expects the economy to grow modestly this year and for growth to pick up somewhat next year, though he expects to see the unemployment rate rise to 4.5% over the next year, up from 3.6% as of February.
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