Other top economists and global central bankers have been voicing similar concerns about inflation’s potential staying power, including during panels at the World Economic Forum in Davos, Switzerland this week. Thomas J. Jordan, the head of Switzerland’s central bank, warned on Friday that it might be a challenge to get inflation all the way back to normal.
“It will be much more difficult to bring inflation from 4 percent to 2 percent,” Mr. Jordan said. Many central banks, including the Fed, target 2 percent annual inflation.
And Lawrence H. Summers, the Harvard economist and former Treasury secretary, said on the same panel in Davos that markets are being surprisingly single-minded in the way they are thinking about the way interest rates will shape up. Many investors expect the Fed to lift rates two more times before cutting them by the end of the year, and they anticipate that rates will remain low over the longer term.
“I can see many many more scenarios in which rates end up higher than what’s currently priced, than I can see scenarios where rates end up lower than what’s currently priced,” he said. “Therefore, I’m a bit surprised by the market’s forecast of what’s going to happen.”
Mr. Williams from the Fed said that even if inflation is still too high and the economy is stronger than expected, the Fed is past the phase where it mostly focused on the speed of rate increases, with the focus now on how high borrowing costs would eventually rise.
“At this point the speed is not the important thing — it’s really what level do we get to,” Mr. Williams said. “And then really importantly, moving to the next stage, how long do we need to hold.”
He acknowledged that it is a challenge to try to understand what is happening in the economy, and with price increases in particular.
“I don’t think any traditional rules of thumb based on historical experiences” apply, Mr. Williams said, explaining that the recent inflation has been “so extraordinary.”
