John C Williams: A steady anchor in a stormy sea

Remarks by Mr John C Williams, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Swiss National Bank (SNB)-Federal Reserve Board (FRB)-Bank for International Settlements (BIS) High-Level Conference on "Global Risk, Uncertainty, and Volatility", Zurich, 9 November 2022.

Central bank speech  | 
09 November 2022

As prepared for delivery

It is a pleasure to be here today to discuss a timely and important topic: the anchoring of inflation expectations. Against the backdrop of the stormy seas of the global inflation of the past year and a half, a steady anchor is more critical than ever. But, what does it mean for inflation expectations to be well anchored, and how would we know if they are? In my remarks, I will describe three criteria for well-anchored inflation expectations. I will then provide an initial assessment of the behavior of inflation expectations in the United States against these three criteria since inflation surged in the spring of last year. I should emphasize the word "initial," since we are still in the midst of the storm, and definitive conclusions on the anchoring of expectations will await the ship's safe return.

This is the perfect time to give the usual Federal Reserve disclaimer that everything I say reflects my own views and not necessarily those of the Federal Open Market Committee (FOMC) or anyone else in the Federal Reserve System.

The critical importance of anchoring inflation expectations is now enshrined as a bedrock principle of modern central banking. One way central banks have sought to anchor expectations is through a commitment to an explicit longer-run inflation goal. For example, the FOMC's Statement on Longer-Run Goals and Monetary Policy Strategy, issued in January 2012, set a 2 percent longer-run inflation goal. It declared: "Communicating this inflation goal clearly to the public helps keep longer-term inflation expectations firmly anchored, thereby fostering price stability and moderate long-term interest rates and enhancing the Committee's ability to promote maximum employment in the face of significant economic disturbances." The 2 percent longer-run goal and the importance of well-anchored inflation expectations were reaffirmed in the FOMC's updated Goals and Strategy statement released in 2020.