Federal Reserve (Fed) Bank of New York President John Williams recently discussed the current state of inflation and Fed policy. He believes that while inflation is still too high, the Fed’s policies are positioned to slowly bring price growth back to the Fed’s 2% annual target. Williams expects unemployment to reach 4% by the end of the year and predicts the US economy will grow by 2%-2.5% in 2024. Despite the current high inflation, he is confident that Fed policy is well-positioned to achieve the 2% target. Williams anticipates inflation to be at 2.5% this year, closer to 2% next year.
On the topic of progress in lowering inflation, Williams mentioned that there has been a lack of advancement recently. However, he assured that the Fed will closely monitor all data to make informed decisions on monetary policy. Williams acknowledged that monetary policy remains restrictive on economic activity but noted that risks to achieving the Fed mandates are moving into better balance. He emphasized that wage gains are still too high relative to the 2% inflation goal, but the economy is moving towards better balance. Additionally, Williams stated that inflation expectations data has been stable, and he feels confident about the current state of monetary policy.
Looking ahead, Williams forecasted that inflation will reach 2% in early 2026 and clarified that rate hikes are not the baseline forecast. He highlighted that there are signs indicating that the job market is cooling to decent levels. Despite the uncertainty surrounding when rate cuts may start and how much easing will be necessary, Williams emphasized that the Fed will continue to assess the situation carefully. While Friday’s PCE data is important, Williams emphasized that it is just one piece of the puzzle when making decisions on monetary policy.
In conclusion, Williams expressed his confidence in the effectiveness of current monetary policy and his belief that the Fed is well-equipped to address the challenges of high inflation. He emphasized the importance of monitoring all data to make informed decisions and stressed that risks to achieving the Fed mandates are moving into better balance. Overall, Williams remains optimistic about the future of the economy and the Fed’s ability to steer it towards stability and growth.
