MNI: Williams Says Fed Rates Are Well-Positioned

New York Fed President John Williams on Thursday said he expects inflation to moderate in the second half of this year and repeated the FOMC's promise in May that officials would not cut interest rates until they have gained greater confidence that inflation is moving sustainably toward 2%.

"I see the current stance of monetary policy as being well positioned to continue the progress we’ve made toward achieving our objectives," said Williams in prepared remarks. "It goes without saying that the outlook is uncertain. The risks are two-sided, with geopolitical events and China’s growth outlook prominent examples."

The New York Fed chief said inflation in the United States remains too high. "Overall, I see some of the recent inflation readings as representing mostly a reversal of the unusually low readings of the second half of last year, rather than a break in the overall downward direction of inflation." (See MNI INTERVIEW: Fed Cuts Timeline Pushed Back-Reinhart)

His outlook for the economy is little changed from last month, with GDP growth this year between 2% and 2.5%, the unemployment rate edging higher to to about 4% by year-end then moving gradually down to its longer run level of 3.75% thereafter, he said. As demand and supply continue to come into better balance, he expects PCE inflation to moderate to about 2.5% this year, before moving closer to 2% next year.

Most labor market indicators have returned to pre-pandemic levels, Williams said, but two are still signaling a tighter labor market than before the pandemic: job vacancies and wage growth. "Wage growth has yet to fully return to levels consistent with 2% price inflation on a sustained basis," said Williams, also vice chair of the FOMC.

POLICY IS RESTRICTIVE

Williams said monetary policy is restrictive when considered in a broader context, rather than simply "looking at the growth rate of the economy, or comparing the interest rate to its longer-run level or r-star."

"The behavior of the economy over the past year provides ample evidence that monetary policy is restrictive in a way that helps us achieve our goals," he said. "We are seeing clear and consistent signs that the imbalances between supply and demand in the economy are receding. And we have seen a broad-based decline in inflation."

"The overarching objective of monetary policy today is to bring inflation down to 2% over time while maintaining a strong labor market," Williams told the Economic Club of New York.