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November 14, 2019

Key Takeaways from President Williams’s Speech on the Interconnectedness of the Global Economy

On Thursday, November 14, New York Fed President John Williams spoke about the interconnectedness of the global economy, and what that means for the outlook in the United States.

He said:

“If monetary policy represents a set of scales, on one side we have a strong U.S. economy with unemployment near a 50-year low, and on the other, a more challenging and uncertain landscape.”

“[T]he interconnectedness of our economies means that literally, no man is an island. If one economy starts to struggle, the spillover effects onto others can take hold rapidly.”

“The long-term factors driving low r-star and slowing global growth, as well as the more near-term geopolitical tensions, are afflictions from which we all suffer.”

President Williams began by describing current economic conditions in the United States. He said, “GDP looks to grow around 2 percent this year, and unemployment has stayed at or near historically low levels.” But despite strong growth, the FOMC has moved to cut rates three times this year. He discussed three trends — the low neutral rate of interest, or r-star, slowing global growth, and rising geopolitical tensions — that are “critically important to the long-term prospects of the U.S. economy.”

Turning to r-star, he said that structural shifts in demographics and productivity growth “point clearly in the direction of low neutral interest rates and slowing growth.” He noted that “the fact that these changes are a common experience for so many developed economies creates challenges to our economic prospects at home.” Discussing slowing global growth, he highlighted that the latest International Monetary Fund numbers for global growth are now at their lowest since 2008–09. And finally, he said that rising geopolitical tensions “are driving many businesses to take a wait-and-see approach to investment, thus putting a further dampener on growth prospects.”

Turning to what this means for the U.S. economy and monetary policy, President Williams said, “The adjustments to monetary policy we made this year were designed to balance maintaining a strong U.S. economy with slowing global growth, and provide insurance against ongoing and potential future risks.”

Read the full speech.

This article was originally published by the New York Fed on Medium.

The views expressed in this article are those of the contributing authors and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.


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