New York Federal Reserve President John Williams said on Friday that the U.S. central bank’s monetary policy is at the right level right now, given the state of the economy in an environment of uncertainty.
“There is uncertainty in monetary policy,” he said in remarks prepared for an event in the Bahamas. He stressed that “a moderately tight monetary policy stance is appropriate at this time” given that the labor market remains strong and inflation remains above the central bank’s 2% target. The current policy setting also allows the Fed to “adapt to changing conditions that affect the achievement of our twin mandate goals.”
Williams spoke two days after Fed policymakers kept their benchmark interest rate in a range of 4.25%-4.50% and signaled that they still expect a rate cut at some point this year.
At the same time, Fed officials acknowledged significant uncertainty in the economic outlook following the Trump administration’s dramatic and sometimes chaotic policy changes, which are expected to increase inflationary pressures at least in the short term.
Williams did not provide his expectations for Fed policy for the rest of the year but stressed that the economy is starting 2025 on a strong footing. While the process of deflating inflation is somewhat uncertain, he said the labor market is now more balanced and is no longer a major driver of price pressures.
Looking ahead, Williams expects economic growth to slow in part due to lower immigration. However, he stressed that it is difficult to predict exactly how the economy will develop.
Williams also discussed recent data showing an increase in near-term inflation expectations, as well as deteriorating public sentiment as the Trump administration moves to shrink the federal government and reduce spending.
Williams also commented on the Fed’s decision this week to slow the pace of its balance sheet reduction to near-imperceptible levels, in response to uncertainty in government financing and signs of tension in money markets. He said that “this week’s decision to slow it down further is a timely step” in an effort that has reduced more than $2 trillion from the Fed’s holdings.
