San Francisco Fed President John Williams, who will take over the helm at the New York Federal Reserve Bank in June, gave the clearest indication yet that the Federal Reserve plans to run price inflation "hot" by allowing it to climb above 2% without attempting to battle it.
"I see the unemployment rate getting down to 3.5 percent. I see us maybe modestly overshooting our 2 percent inflation target," Williams told CNBC Friday.
Williams said the central bank wanted to reinforce the fact that it thinks of 2 percent as the mid-point.
"From the beginning, we've seen our inflation target being a symmetric one, where we want inflation on average to be 2 percent — sometimes above, sometimes below," he said in an interview with CNBC's Steve Liesman on "Power Lunch."
"I am personally comfortable with the fact that inflation may overshoot that 2 percent for a while," he added.
Williams will leave his post in San Francisco to head up the New York Fed after the current New York Fed president, William Dudley, leaves. Dudley's last day will be June 17.
Williams comments on CNBC reflect the general Fed thinking that price inflation increases will be relatively tame in the near future. This is rearview thinking based on modest price inflation in the recent past. There is nothing that says this modest price inflation advance will continue, In fact, I forecast in the EPJ Daily Alert that price inflation is likely to climb aggressively in the near future and the Fed will be far behind the curve in fighting price inflation.
-Robert Wenzel
(via CNBC)
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