By Michael S. Derby
New York Federal Reserve President John Williams said on Friday the US central bank’s monetary policy is in the right place given the myriad uncertainties facing the economy, noting that there’s no urgency to make any changes to interest rates.
“Modestly restrictive” monetary policy “is entirely appropriate given the solid labor market and inflation still running somewhat above our 2 percent goal,” Williams said in a speech in the Bahamas.
In comments to reporters after his formal remarks, Williams said the Fed eventually will need to cut rates back to a level deemed neutral in regard to its impact on the economy. But in the meantime, “the downside risk to economic growth and the upside risk to inflation (are) both very high,” in a climate where broader government policies are shifting rapidly and unpredictably, he said.
With monetary policy “in a good place” to deal with what lies ahead, Williams said “let’s collect more data” and “we’re not in a hurry” to make any changes in the setting of monetary policy.
Chicago Fed President Austan Goolsbee echoed Williams’ monetary policy caution, telling CNBC on Friday that uncertainty argued for the Fed standing aside until more clarity emerged. Goolsbee said the economy was strong and that he’s waiting to see how President Donald Trump’s tariffs, which many economists expect to worsen a challenging inflation situation, play out.
UNCERTAIN OUTLOOK
Williams and Goolsbee weighed in two days after Fed policymakers left the central bank’s benchmark interest rate in the 4.25 percent-4.50 percent range and signaled they still expect to lower it at some point later this year.
At the same time, Fed officials acknowledged considerable uncertainty about the outlook amid the Trump administration’s dramatic and often chaotic policy changes, which they expect to help drive up inflation pressures, at least in the short term.
In his speech, Williams said that the economy started 2025 on a good footing, adding that while the cooling of inflation has been a bumpy process, the job market is in better balance and is not itself a driver of price pressures.
Looking ahead, Williams said he sees growth slowing in part because of lower immigration rates. But he added, “it’s hard to know with any precision how the economy will evolve.”
“There are many scenarios that could play out, depending on fiscal and trade policies and geopolitical and other developments,” Williams said, adding that “it is hard currently to assign probabilities to these scenarios.”
Williams also told reporters that “the downside risk to economic growth and the upside risk to inflation (are) both very high” and added that, while the Fed knows more about what sort of import tariffs Trump is pursuing, details are still emerging and the impact is unclear.
The New York Fed chief also addressed recent data that has tended to point to a notable rise in the expected path of inflation over the near-term, which has added to other data indicating a souring in the public mood as the Trump administration aggressively downsizes the federal government and cuts spending.
