(Bloomberg, Monday) — The Federal Reserve’s chief official dismissed the deteriorating liquidity situation in financial markets. He said it was expected because of rising volatility that investors face due to uncertainty about global events and changing U.S. monetary policies.

“In the global environment there’s a lot of uncertainty, and a lot of events happening. We’re also seeing our actions moving monetary policy, I think, in a very strong direction, to more normal rates,” New York Fed President John Williams told a Mortgage Bankers Association conference in New York. “Some of that volatility — in say, the Treasury market — is really the markets digesting that information.” 

Signs of deteriorating liquidity in U.S. Treasuries, such as measures of market depth and bid-ask spreads, are “more or less in line with the increase in volatility in markets,” he said. “It’s just a reflection more of: A lot’s happening with market rates moving around, and therefore you’re seeing some of these measures of liquidity deteriorate somewhat, and pretty much consistent with past experience there.”

Williams’s comments echoed a semi-annual report on financial stability issues published on May 9, and were delivered amid a broad market downturn that has seen the of U.S. stocks lose nearly 17% of its value since reaching a record high in the first week of the year.

To slow the economy down and lower inflation, the central banks is trying to improve financial conditions. The benchmark federal funds rate was increased by half a point at their last meeting of May 4. This marks the highest single increase since 2000.

After the meeting, Fed Chair Jerome Powell stated to reporters that central banks were on track for additional half-point rises at its next two meetings in June or July.

Williams said Monday such a plan “makes sense” as the Fed moves rates “expeditiously over this year back to more normal levels.”

“We do need to move — again, the word is ‘expeditiously’ — to more normal rates this year, and we’re on our way to do that. But we also need to watch, and we need to monitor what’s happening in the economy,” Williams said.

“We’ve already seen a tightening in U.S. financial conditions that is far greater than what we saw in all of 1994,” he added, referring to an episode where, under then-Chair Alan Greenspan, the Fed embarked on a surprise tightening campaign that led bond investors to sustain heavy losses.

The Labor Department published figures on May 11 that showed 8.3% increase in consumer prices for the US during April. It was slightly less than the 8.5% inflation in the March 12 months. This is the highest rate of inflation in over 40 years.

“Job number one is to bring inflation down,” Williams said. “The risk that I’m most focused on is what happens if inflation stays higher than expected.”

(Updates with additional Williams comments

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