In remarks delivered at the Federal Home Loan Bank of New York’s annual symposium, New York Fed President John C. Williams discussed the progress made in restoring price stability to the economy, the work still needed to return inflation to 2 percent, and the trajectory of the Fed’s balance sheet.
He said:
“The overarching objective of monetary policy now is to properly balance restoring price stability and maintaining maximum employment, and the FOMC remains strongly committed to bringing inflation down to 2 percent over time.”
“All in all, there has been tremendous progress toward better balance. But this episode is not yet over, and I am still very focused on ensuring we achieve both of our goals.”
“As has been the case since the onset of the pandemic, the outlook ahead is uncertain, and we will need to remain data-dependent.”
In his speech, President Williams used recent cosmic events as a point of reference, noting that a solar eclipse only happens when several things are perfectly aligned. Similarly, “the Federal Reserve’s dual mandate has two goals that need to be in tune with one another: maximum employment and price stability,” he said.
He pointed out that over the past year, there has been “considerable progress” toward the Federal Reserve’s objectives. “The economy grew far faster than anyone expected last year,” he said. “At the same time, the labor market has remained strong. The unemployment rate has been under 4 percent for more than two years, which is the longest stretch at that rate in over 50 years.”
“Inflation has come down substantially, too,” he added. He pointed to the 12-month percent change in the personal consumption expenditures (PCE) price index, which has continued to decline, “falling from its 40-year high of above 7 percent in mid-2022 to 2-1/2 percent in the latest reading.”
President Williams then turned to dynamics playing out in the real estate space. On demand for housing, he said that restrictive monetary policy is having “its usual restraining effects” but that it is occurring at a time “when structural demand for housing has been especially strong.” He also noted the effects that housing demand has had on rents, as well as the uncertainty and concern around commercial real estate.
On monetary policy, he stated that the Federal Open Market Committee (FOMC) has “put in place a restrictive stance of monetary policy with the aim of bringing inflation back to 2 percent on a sustained basis.” In light of the progress seen in that regard, “the risks to achieving our maximum employment and price stability goals are moving into better balance,” he added.
He closed by mentioning the Fed’s balance sheet, saying that the “execution of that plan is proceeding as we had envisioned, with securities holdings decreasing and take-up at the overnight reverse repurchase facility declining.”
Taking into account the effects of the FOMC’s restrictive monetary policy, President Williams expects:
- GDP growth to be about 2 percent this year
- The unemployment rate to peak at 4 percent this year and move gradually down to its longer-run level of 3-3/4 percent thereafter
- Overall PCE inflation to be 2-1/4 to 2-1/2 percent this year, before moving closer to 2 percent next year
Julie Lasson is an executive communications specialist at the New York Fed.
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.
