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November 28, 2022

Key Takeaways from President Williams’s Speech on Peeling the Inflation Onion

On Monday, November 28, 2022, New York Fed President John Williams spoke about inflation, monetary policy, and the economic outlook at a virtual event hosted by the Economic Club of New York.

He said:

“Inflation is far too high, and persistently high inflation undermines the ability of our economy to perform at its full potential.”

“The priority for monetary policy is clear. The Federal Reserve is strongly committed to bringing inflation back down to its 2 percent longer-run goal.”

“It will take some time, but I am fully confident we will return to a sustained period of price stability.”

In his remarks, President Williams said that one way that he’s been thinking about the problem of inflation is through an analogy of an “inflation onion” that has three distinct layers.

The outermost layer consists of prices of globally traded commodities that saw a surge in demand, leading to sizable imbalances between supply and demand, and ultimately large price increases. The middle layer is made up of other products that experienced both strong demand and severe supply-chain disruptions, contributing to outsize price increases. The innermost layer is underlying inflation—the most challenging of the three—reflecting the overall balance between supply and demand in the economy and the labor market.

He then went on to explain where all these inflationary layers stand today and what to expect in the future, while noting the Federal Open Market Committee’s strong, decisive policy actions in support of its steadfast commitment to price stability.

President Williams also gave his economic outlook. He expects:

  • Real GDP to increase only modestly this year and in 2023.
  • Unemployment to climb from its current level of 3.7 percent to between 4.5 and 5 percent by the end of next year.
  • Inflation to slow from its current rate to between 5 and 5.5 percent at the end of this year, and to slow further to between 3 and 3.5 percent next year.

Read the full speech.

Julie Lasson is an executive communications specialist at the New York Fed.

The views expressed in this article are those of the contributing authors and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.


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