Williams Says Fed Still Has Work Ahead as Inflation Stays High

what happened

New York Fed President John Williams told an event in New York on Thursday that the central bank has more to do before its policy stance is right, with inflation still running above target, according to Dow Jones Newswires. He said 'the data is speaking very clearly to us', pointing to a strong economy, firming hiring and entrenched price pressures. He wants steps taken over time to bring inflation back to 2% promptly and durably.

The Fed kept rates unchanged in October after a quarter-point increase in September. Williams had earlier said another hike later this year could be suitable. Cleveland Fed President Beth Hammack, speaking separately, backed small, gradual increases that give households and firms time to adjust. Governor Michelle Bowman said on Tuesday that the gains from further tightening must be weighed against the costs for rate-sensitive sectors.

Existing-home sales dropped to their weakest level since 2010 on Thursday, and mortgage rates may stay elevated as inflation worries weigh on Treasury yields.

why it matters

October's inflation report strengthened the case for a December hike, with CME FedWatch data putting the odds near 85%. Tighter rate expectations typically support the dollar and weigh on bonds and on rate-sensitive areas such as mortgages and housing.

market impact

USD and Treasuries: hawkish Fed signals lift yields and support the dollar

• ▲US dollar pressure up — higher expected policy rates make dollar-denominated assets more attractive
• ▼US Treasuries pressure down — rising hike bets push yields up and prices down

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