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April 2, 2022

Key Takeaways from President Williams’s Speech on the Economic Outlook and Monetary Policy

On Saturday, April 2, New York Fed President John Williams spoke about inflation, the economic outlook, and monetary policy at an event hosted by the Griswold Center for Economic Policy Studies at Princeton University.

He said:

“Price stability is essential for sustained economic prosperity, and we are strongly committed to using our tools as needed to achieve our price stability and maximum employment goals.”

“With low unemployment, solid wage growth, and ample job openings, all indicators show that the strength of the labor market is at a level consistent with my view of maximum employment.”

“The other side of our mandate is price stability, and this is where our greatest challenge now lies.”

In his remarks, President Williams said the pandemic and war in Ukraine have common effects across countries, as well as distinct impacts on the U.S. economy. “Shutdowns, contractions, and rapid rebounds were the shared impacts across countries,” he said. “But so were supply-chain bottlenecks, shortages in semiconductors, and backlogs at ports — issues we grapple with today.”

Still, there are areas where “we have had a uniquely American experience in the COVID-19 recovery,” he said. The amount of direct fiscal support in response to the pandemic was larger in the United States than in most countries, he noted. In addition, the U.S. labor market has recovered strongly, and labor shortages have become more acute in the United States.

However, high inflation is a key concern around the world, and the ongoing pandemic and war in Ukraine present challenges and uncertainty. As a result, the Federal Reserve and other central banks are moving away from the highly accommodative stances they took in the spring of 2020.

Last month, the Federal Open Market Committee (FOMC) raised the target range for the federal funds rate by a quarter of a percentage point. The FOMC also communicated two important messages: it expects ongoing increases in the target range will be appropriate, and it expects to begin reducing its holding of securities. President Williams said he anticipates the FOMC will begin reducing the size of the balance sheet “as soon as the May FOMC meeting.”

These monetary policy actions, along with those in other countries, “will help bring demand for labor and products in closer alignment with available supply,” President Williams said. “As this reduction in demand-induced price pressures takes effect and supply constraints gradually ease, I anticipate inflation readings will begin to decline later this year, although this process will take time to fully play out.”

For 2022, President Williams said he expects inflation, as measured by the personal consumption expenditures price index, to be around 4 percent, then decline to about 2½ percent in 2023, before returning close to the Federal Reserve’s longer-run goal of 2 percent in 2024.

“These actions should enable us to manage the proverbial soft landing in a way that maintains a sustained strong economy and labor market,” he said. “Both are well positioned to withstand tighter monetary policy.”

President Williams also said he expects “the economy to continue to grow this year and for the unemployment rate to remain close to its current level.”

“These are uncertain times, and the policy questions we face are challenging,” he said. “But we have learned the lessons of high inflation from the past.”

Read the full speech.

Judy DeHaven 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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