Fed officials have pivoted policy aggressively to confront the hottest inflation in 40 years, jarring financial markets as investors fret they could move too fast and cause a recession. Officials for their part have played down that threat, stressing their resolve to cool prices, while acknowledging that their actions could slow the economy and cost US jobs.

The Fed raised interest rates by 75 basis points last month, the biggest move since 1994, and according to minutes of that meeting officials backed raising them by either 50 or 75 basis points when they gather again in late July. Traders see a 75 basis-point move as a near-certainty.

‘Critical Step’

Williams, in his speech, called the June rate move “a critical step” in removing the very easy monetary policy the central bank installed to shield the economy in the early days of the pandemic.

“In determining how quickly and how high to raise the rates in the future, we’ll watch closely to see how the economy responds to tightening financial conditions and how inflation, inflation expectations, and the economic outlook evolve,” he said. “We will be data-dependent and nimble in our approach.”

US employers added 372,000 workers to payrolls in June, according to Labor Department figures published Friday, marking a faster pace of job creation than forecasters had anticipated. The jobs report bolstered expectations that Fed officials will opt for another three-quarter point rate increase at their next meeting.

Williams called the labor market “incredibly tight,” adding that the central bank’s congressionally-mandated goal of maximum employment “has been achieved.” Tighter monetary policy aimed at combating inflation will boost the unemployment rate somewhat, he said.

“I currently expect real GDP growth in the United States to be below 1% this year, and then to rebound slightly to around 1.5% next year,” Williams said. “With overall growth slowing to below its trend level, I expect the unemployment rate to move up from its very low current level, reaching somewhat above 4% next year.”