A senior Federal Reserve official voiced confidence that the central bank is now "well positioned" to achieve a soft landing for the U.S. economy. He hinted that the pace of interest rate cuts would be slower after a significant half-percent cut in September.
John Williams, president of the New York Fed, noted that the "very good" September jobs report showed continued strength in the U.S. economy, even as inflation moderated after more than a year of high interest rates.
"The current monetary policy approach is really well positioned to continue to maintain the strength we have in the economy and the labor market, but also keep inflation back to 2%," Williams said.
The latest jobs data eased fears of a recession, which had previously loomed over the economy as the Fed raised borrowing costs to fight the worst inflation in a decade. The data has also tempered expectations of another half-percent reduction in November, after an earlier reduction in September to 4.75-5%.
Williams, a voting member of the Federal Open Market Committee (FOMC) and a close ally of Fed chairman Jerome Powell, defended the decision to cut rates in September, saying it was the right thing to do.
When asked about future rate cuts, Williams referred to the Fed's "dot plot," which suggests two quarter-percentage-point cuts at its upcoming meeting this year, and described it as "very good fundamentals."
Williams stressed that decisions will depend on the data, not follow a predetermined path. He also stressed that the half-percent reduction in September was not "a permanent way of how we will act in the future."
He reiterated that the goal is to bring interest rates to a "neutral" level, where they no longer constrain demand. However, he admits that an accurate prediction of the final destination of interest rates is difficult to say.
If inflation falls more quickly, Williams said it would allow for a faster normalization of policy. Conversely, if inflation stalls, rate cuts will be slowed accordingly.
