Federal Reserve Bank of New York President John Williams said pandemic-era price shocks changed American consumers’ inflation perceptions, and policymakers can’t take for granted that people’s estimates of future price increases will remain anchored.
“The past five years have, I think, changed people’s perceptions of inflation,” Williams said Wednesday in Tokyo during a conference at the Bank of Japan. Policymakers should aim to anchor not only longer-term estimates of future consumer price increases, but “the whole curve”, he added.
“The thing you want to avoid is allowing inflation to become highly persistent, because highly persistent can kind of become permanent,” he said.
Several household-based surveys have shown consumers’ views of the economy worsening and their estimates for near-term consumer price increases rising in recent months, following a raft of tariff announcements from the Trump administration.
Market-based measures of future inflation, however, and surveys conducted by the New York Fed still point to longer-term estimates that remain around the central bank’s 2% inflation target.
Last week, Williams signaled policymakers could hold interest rates steady through July as they try to gain clarity on the economic impact of President Donald Trump’s trade policy changes.
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Fed officials have said they see a risk of higher unemployment and higher inflation, but have generally said that monetary policy is well-positioned for them to wait and see how the economy evolves before deciding on further rate moves.
