US to see growth boom, but Fed's Williams says inflation not a worry
According to John Williams, president of the Fed's powerful New York branch, the world's largest economy still needs several months of solid job growth to achieve a complete recovery, and the central bank will be in no rush to change its stimulative policies.
According to Williams, the US economy will grow by about 7% this year as it recovers from the Covid-19 pandemic, which he describes as "welcome improvement after the hardest time for the economy in living memory."
But "While I am optimistic that the economy is now headed in the right direction, we still have a long way to go to achieve a robust and full economic recovery," Williams said in a speech to the Women in Housing and Finance annual conference.
He credited the Fed's stimulative policies, including near-zero interest rates, for having a "positive impact" on the economy, allowing Americans to buy homes and large-ticket items.
"In fact, with accommodative financial conditions, strong financial support, and widespread vaccinations, I expect that the rate of economic growth this year will be the fastest that we've experienced since the early 1980s," he said.
However, as economic activity and market demand resume after months of stagnation, increasing oil prices and the recovery from the pandemic downturn are driving prices higher, fueling fears of an inflationary spiral.
"It's necessary not to overreact to this volatility in prices caused by the unusual circumstances of the pandemic," Williams cautioned.
Inflation will return to the central bank's two percent target in 2022, he predicted, "after the price reversals and short-run imbalances from the economy's reopening have played out."
Last week, Fed Chair Jerome Powell made the same point in an attempt to assuage investors and some economists' concerns, saying there is a distinction between "one-time price rises" and a steady rise in inflation.
Williams told reporters after the speech that market forecasts point to a drop in inflation.
In the short term, "a sizable chunk" of the price increases are attributed to the dramatic drops in the early months of the pandemic shutdowns.
Those impacts, however, can fade. "Some of it really ... is arithmetic," he said, emphasizing that the Fed would keep an eye on all of the factors influencing prices.
Powell said in a speech Monday that the US economic outlook had "clearly brightened," but that "we're not out of the woods yet."
He emphasized that the economic downturn has mostly harmed lower-income jobs, with Black and Hispanic workers suffering the greatest employment losses.
"The Fed is focused on these long-standing disparities because they weigh on the productive capacity of our economy," Powell told a community development group.
"We will only reach our full potential when everyone can contribute to, and share in, the benefits of prosperity."
Williams noted that the economy added 900,000 jobs in March, and said, "I am hopeful that we will see very strong job gains over coming months as the economy continues to reopen."
The Labor Department is scheduled to release the April employment report on Friday, and the median estimate is for the US to add one million jobs.