The economic impact of the war in Ukraine and the ongoing COVID-19 pandemic on the U.S. and global economies remains unclear, New York Federal Reserve President John Williams said on Friday.
"Across the globe, many central banks - including the Federal Reserve - are moving to unwind the highly accommodative policies they put in place at the start of the pandemic," Williams said in prepared remarks to a conference organized by the Central Reserve Bank of Peru and Bank for International Settlements. "And we are doing this at a time when the economic implications of COVID-19 and the war in Ukraine remain highly uncertain."
Williams, who delved little into his own outlook for the economy or monetary policy in his remarks, also noted the sharp rise in U.S. inflation, which at above 6% is more than three times the Fed's flexible average goal.
Several U.S. central bank officials, including Fed Chair Jerome Powell, indicated this week a renewed sense of urgency in battling a surge in prices that has pushed inflation to a 40-year high, even amid uncertainty about the economic impact of Russia's invasion of Ukraine.
Their words have led to the base-case view that the Fed will raise its benchmark overnight interest rate by half a percentage point at its May 3-4 policy meeting, and that it may also start reducing its nearly $9 trillion balance sheet.
Investors currently see a 70% probability that the Fed's overnight lending rate will rise by half a percentage point in May, up from 44% a week ago, according to CME Group's FedWatch tool.
The Fed's current forecast would raise its benchmark overnight interest rate to almost 2% this year with a view to it rising near to 3% next year, a level which would be designed to put the brakes on the economy and further cool down price pressures.