According to Reuters, New York Fed chair John Williams said on Saturday at a Princeton University event that the Fed could start trimming its balance sheet as soon as next month.
Inflation, which is currently at 6.5 percent, is the central bank’s “greatest challenge,” according to Williams. Factors such as the pandemic, the war in Ukraine, and labor and supply shortages, he said, could drive it up.
“Uncertainty about the economic outlook remains extremely high, with risks to the inflation outlook being especially acute,” Williams said.
Nonetheless, Williams believes that rate hikes and balance sheet reductions will help bring inflation to around 4% this year.
“These actions should enable us to manage the proverbial soft landing in such a way that the economy and labor market remain strong,” Williams said. “Both are well positioned to withstand monetary policy tightening.”
—Lauren Feiner
