Fed's Williams sees no urgency for next Fed rate hike

By Michael S. Derby

BUFFALO, Sept 29 (Reuters) - Federal Reserve Bank ‌of New York President ​John Williams said ​on Tuesday that the U.S. central bank has time to weigh economic data before deciding when to hike interest rates again, adding one more increase is likely before the year ends.

“With the policy action we took at our September meeting, there is no ‌need for urgency,” Williams said in a speech at the University at Buffalo in Buffalo, New York. Watching incoming ⁠data before deciding what's next “should provide greater clarity” on how the economy is performing, Williams said.

“If the economy evolves in a manner broadly consistent with my forecast, one further upward adjustment ‌of the federal funds target range may be ‌appropriate late this year to support a timelier return of inflation to target,” Williams said, while adding, “that is just my forecast, and time — and the totality of the data — will tell.”

Williams' pointed comments on the outlook for rates come as financial markets are pricing for the Fed ​to follow the September rate hike, which lifted the Fed’s overnight target rate range by a quarter percentage point to between 3.75% and 4%, with more increases as the year moves to a close.

Ahead of Williams' comments, futures markets saw a strong chance the Fed would hike rates at ⁠its October 27-28 monetary policy meeting, a notion Williams appeared to push back on. After his remarks, traders pared those bets to about even.

Williams said in his remarks that with the economy growing ​robustly and the job market holding in, price pressures can now be the main focus for monetary policy.

“It is imperative that we return inflation to our 2% target on a sustained basis,” Williams said. “To do so, we must ​make certain that adverse inflationary disturbances do not become entrenched, and that any second-round ‌effects on inflation remain muted.”

The Fed is raising rates to deal with inflation pressures that have overshot its 2% target for over half a decade. Those pressures have worsened this year on President Donald Trump’s trade tariffs and surging ⁠energy prices tied to the war in the Middle East.

Fed officials are increasingly worried inflation will not get back to target in a timely fashion and that action is needed to ensure that the public doesn’t shift toward accepting persistently high inflation as normal.

Williams noted in his remarks that artificial intelligence investment is also helping to drive ⁠up price pressures, while adding tariff-related pressures have largely abated so long as the president doesn’t resort to fresh import tax increases.

Williams said he sees inflation ending the ​year around 3.5% as price pressures ease next year on the way toward getting inflation back to target in 2028.

“Depending on what happens with the (Middle East) conflict - and there's a lot of uncertainty about that - if you think, well, oil prices probably aren't going to double, increase a lot again, then that impulse to inflation should fade, ‌just like the tariff impulse to inflation has faded,” Williams said.

“Therefore, inflation should actually come down” given that energy prices are no longer likely to create outsized gains, he said.

Williams told reporters after his speech that he does ‌not believe the increase in long-term government bond yields signals a shifting view on the part of investors toward higher inflation, while adding that at the margin, the ⁠higher yields are creating tighter financial conditions.

He also said in ‌his remarks that he sees growth at 2.25% ​this year and noted that immigration factors, an aging workforce and modest productivity levels limit how high growth can get. Williams also said that he sees the unemployment rate at 4% next year.

(Reporting by Michael S. Derby; Editing by Andrea Ricci ‌and Cynthia Osterman)

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