MNI: Modestly Restrictive Fed Policy Appropriate - Williams
MNI (WASHINGTON) - Federal Reserve Bank of New York President John Williams indicated support Friday for a wait-and-see stance on monetary policy, saying the current setting is restrictive and can be adjusted as needed in an uncertain policy landscape.
"The current modestly restrictive stance of monetary policy is entirely appropriate given the solid labor market and inflation still running somewhat above our 2% goal. It also positions us well to adjust to changing circumstances that affect the achievement of our dual mandate goals," he said in a speech for a Caribbean conference on macroeconometrics in Nassau, Bahamas.
"Uncertainty is high, and there are many scenarios that could play out, depending on fiscal and trade policies and geopolitical and other developments."
The FOMC held rates unchanged at 4.25-4.5% this week for a second straight meeting. Chair Jerome Powell said President Trump's tariffs will keep higher inflation in place for longer while restraining investment and growth this year. (See: MNI FED WATCH: Powell To Sit Tight Amid Heightened Uncertainty)
SLOWER GROWTH
Williams said he expects growth to slow this year in part because immigration has tapered off. He did not give an inflation forecast but noted the central tendency of FOMC projections this week had inflation ending the year between 2.5% to 3% and growth this year between 1.5% to 2%.
"Any of these outcomes — or even some others outside these ranges — seem completely plausible to me," he said.
Short-run inflation expectations have clearly risen in the past two months but most indicators point to continued well-anchored medium- and longer-term expectations, Williams said.
An analysis of how inflation surprises affect expectations show consumers expect an inflation shock to gradually decay after the first year and largely dissipate after five years.
"There are no signs of inflation expectations becoming unmoored relative to the pre-pandemic period," he said.