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January 14, 2022

Key Takeaways from President Williams’s Speech at the Council on Foreign Relations

On Friday, January 14, New York Fed President John Williams spoke about the economic outlook and monetary policy at an event hosted by the Council on Foreign Relations.

He said:

“I expect that U.S. inflation-adjusted, or real, gross domestic product (GDP) increased by about 5-½ percent last year, which would be the strongest growth rate between fourth quarters in over 35 years.”

“The strength in the labor market is seen in a wide variety of indicators, including job openings, quits, and wage growth.”

“But despite the challenges, I am hopeful of a continued strong recovery this year.”

In his remarks, President Williams highlighted key economic developments of last year, which were defined by a “very strong recovery, both here and abroad.” Noting that although all the data is not yet available, he said “I expect that U.S. inflation-adjusted, or real, gross domestic product (GDP) increased by about 5-½ percent last year, which would be the strongest growth rate between fourth quarters in over 35 years.” He also explained that the economic rebound “has led to global supply-chain bottlenecks and imbalances between supply and demand that have contributed to a sharp rise in inflation” and that inflation in the United States “will likely exceed 5 percent in 2021.”

President Williams then discussed the labor market where the picture “improved dramatically over the past year.” He noted that about 6-½ million jobs were added last year, and the unemployment rate plummeted by 2.8 percentage points. “With the economy registering solid growth, I expect the unemployment rate will continue to come down further to 3-½ percent this year,” he said. He added that the labor market has been “especially robust in recent months” for workers at the bottom of the wage distribution and that female labor force participation and employment have improved, especially for women with young children.

Turning to inflation, President Williams pointed to two main contributors to the current high inflation: very strong demand, especially for goods, and supply-chain bottlenecks. “Elevated prices have real life consequences for so many, particularly for people who are struggling to cover the rising costs of food, housing, and transportation,” he said. But with growth slowing and supply constraints gradually being resolved, he expects inflation to “drop to around 2-½ percent this year” and “to get close to 2 percent in 2023.”

President Williams closed with the Federal Reserve’s policy response and recent actions, pointing to the FOMC’s decision to reduce the monthly pace of its net asset purchases. “This movement in policy reflects the gains the economy has made since the beginning of the pandemic and the evolution of the risks to the achievement of our goals,” he said. He also stated that “the next step in reducing monetary accommodation to the economy will be to gradually bring the target range for the federal funds rate from its current very-low level back to more normal levels.” He added: “The timing of such decisions will be based on a careful consideration of a wide range of data and information, with a clear eye on our maximum employment and price stability goals.”

Read the full speech.

Julie Lasson is an executive communications specialist at the New York Fed.

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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