MNI: Fed Rates Headed To Neutral Over Time - Williams
MNI (WASHINGTON) - The U.S. labor market is solid, inflation is closing in on 2% and the Federal Reserve is finally lowering interest rates to a "more neutral setting over time," New York Fed President John Williams said Thursday.
He painted the very picture of a soft landing for the U.S. economy after it was rocked by the worst inflation in decades, forecasting GDP to expand 2.25%-2.5% this year, the unemployment rate to peak at 4.25% this year and next, and inflation to end the year at 2.25% before falling close to 2% next year. Those numbers are slightly better than the median projections from the FOMC last month.
"The economy has been on a remarkable journey. In two years, the red-hot labor market has normalized, and inflation has come within striking distance of our 2% longer-run goal — all while employment and the economy continue to grow," he said in remarks prepared for a talk at Binghamton University in Upstate New York.
"I expect that it will be appropriate to continue the process of moving the stance of monetary policy to a more neutral setting over time. The timing and pace of future adjustments to interest rates will be based on the evolution of the data, the economic outlook, and the risks to achieving our goals." (See: MNI: Job Boom Means Slower Fed Cuts, Pause Possible - Ex-Staff)
LOW INFLATION
Researchers at the New York Fed saw the labor market at mid-year about where it was in early 2018, "a period of solid labor market conditions and low inflation," Williams said, predicting compensation growth should soon return to pre-pandemic levels.
Meanwhile disinflation is underway in every part of the economy, even core services prices which have lagged behind, he said.
Thursday's CPI data for September which came in a tad firmer than analysts had expected but showed headline inflation falling to 2.4%, its smallest increase since February 2021.
"There’s still some distance to go to reach our goal of 2%, but we’re definitely moving in the right direction," Williams said.