Speeding up the pace of interest-rate increases to include increments of a half-percentage point is a "reasonable option" for the Federal Reserve given how low rates are now, New York Fed President John Williams said Thursday.
"I think that's a reasonable option for us because the federal funds rate is very low," Williams said in a Bloomberg Television interview with Michael McKee. "We do need to move policy back to more neutral levels."
The U.S. central bank lifted its benchmark interest rate last month by a quarter-percentage point, marking the first rate increase since Fed officials cut it to nearly zero at the onset of the pandemic in March 2020. They plan to continue raising it throughout the year in a bid to counter the highest inflation in decades. Investors are increasingly betting that coming moves will be in half-point increments instead of the more-typical quarter-point adjustments, starting at the Fed's May 3-4 meeting.
U.S. consumer prices rose 8.5% in the year through March, according to Labor Department data published Tuesday, marking the fastest pace of increases in any 12-month period since 1981.
The New York Fed chief said he and his colleagues should move "expeditiously" toward higher interest rates, adding that he sees a neutral setting as being somewhere in the range of 2% to 2.5%. But how quickly they get there, and whether they will need to go above that level, will depend on the path of the economy.
"We need to really focus on bringing inflation down to our 2% longer-run goal, and to do that over the next few years. So, that is the number one focus, and I say that because the economy is strong," Williams said. "So I do think from a monetary policy point of view, it does make sense for us to move expeditiously toward more normal levels of the federal funds rate."
Asked if the Fed risked tipping the economy into recession, Williams voiced confidence that it could achieve a soft landing.
"I think the economy can withstand real interest rates at neutral or a bit above," he said. "We've seen a dramatic, significant movement in yields and financial conditions over the past several months and that's already positioning policy well to get supply and demand back into balance."
U.S. retail sales rose 0.5% in March and 1.1% excluding autos, according to Commerce Department data published earlier on Thursday, indicating ongoing momentum in U.S. consumer spending.