In remarks in Queens, New York, on December 2, New York Fed President John Williams talked about how monetary policy is working to restore balance to the economy and achieve the Fed’s dual mandate of maximum employment and price stability. He also provided his economic outlook.
He said:
“Right now, the economy is in a good place. The labor market is solid. Inflation is just above our 2 percent longer-run target—although there have been a few bumps along the way. And GDP growth continues to be strong, averaging about 3 percent per year over the past two years.”
“Monetary policy remains in restrictive territory to support the sustainable return of inflation to our 2 percent goal. I expect it will be appropriate to continue to move to a more neutral policy setting over time.”
“Our aim is to ensure that inflation continues its march toward 2 percent while sustaining the strength of the economy and labor market. We’ve come a long way, and we’re committed to getting the job done.”
In his speech, President Williams discussed the rise and fall of inflation and the cooling of the labor market. As the economy has returned to balance and inflation has come down, the Federal Open Market Committee (FOMC) has taken steps to move its monetary policy stance toward a more neutral setting by lowering the target range for the federal funds rate—by half a percentage point in September and a quarter of a point in November.
But with strong growth in GDP, President Williams said he is often asked why the Fed is cutting interest rates at all.
“The simple answer is that while growth in demand has been strong, growth in supply has been even stronger,” he said. “Specifically, robust growth in both the labor force and in productivity has meant that the economy can expand at a higher pace than we saw before the pandemic, without creating inflationary pressures.
“Importantly, our mandate is to achieve maximum employment and price stability,” he said. “That means having demand in line with supply and keeping the risks to achieving our goals in balance. And now that we’ve achieved that balance, our job now is to ensure the risks remain in balance.”
President Williams said that as always, the path for policy will depend on the economic data. “If we’ve learned anything over the past five years, it’s that the outlook remains highly uncertain,” he said. “Our decisions on future policy actions will continue to be made on a meeting-by-meeting basis. And they will be based on the totality of the data, the evolution of the economic outlook, and the risks to achieving our dual mandate goals.”
Based on what is known today, President Williams expects:
- Real GDP growth to come in at about 2-1/2 percent for this year—or maybe a bit higher—reflecting solid supply-side growth.
- The unemployment rate to run between 4 and 4-1/4 percent over coming months.
- And inflation to be around 2-1/4 percent for the year as a whole, and then to gradually come down to the Fed’s 2 percent objective, although the path will likely be uneven at times.
Judy DeHaven 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.
