By Leika Kihara
TOKYO (Reuters) -New York Federal Reserve President John Williams said on Wednesday central banks must “respond relatively strongly” when inflation begins to deviate from their target.
Given high uncertainty around the economic impact of U.S. tariffs and trade policy, central banks should focus on avoiding taking steps where the “cost of getting it wrong far outweighs the benefits,” rather than aiming for the perfect solution to the problem, he said.
Among the costly risks central banks must avoid are to allow inflation expectations to deviate from their targets, Williams said in a fireside chat with BOJ Deputy Governor Ryozo Himino at the central bank’s conference held in Tokyo.
“You want to avoid inflation becoming highly persistent because that could become permanent,” Williams said. “And the way to do that is to respond relatively strongly” when inflation begins to deviate from the central bank’s target, he added.
“We have to be very aware that inflation expectations could shift in any way that could be detrimental,” he said.
(Reporting by Leika Kihara; Editing by Tom Hogue and Shri Navaratnam)
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