On Sunday, November 9, the Financial Times published a transcript of an interview with New York Fed President John Williams. In the interview, he discussed monetary policy, the economic outlook, and the Fed’s balance sheet and policy tools.
He said:
“[I]t’s important to get inflation back to 2 percent on a sustained basis, but do it in a way that doesn’t unduly harm achievement of maximum employment.”
“[I]nflation expectations have remained very well anchored. . . . This is a labor market that, if anything, I think has cooled quite a bit, and is not adding to inflation.”
“[T]he Standing Repo Facility is working exactly as designed.”
In the interview, President Williams said “the baseline outlook for the U.S. economy is very good,” adding that he expects inflation to come down next year and that the economy will continue to grow.
He also discussed the FOMC’s recent decision to conclude its reduction of the Fed’s securities holdings on December 1. “I think that that decision is the right one, because we clearly are moving to this ‘somewhat above ample’ test that we set a few years ago,” he said. “We said we’d stop shrinking the balance sheet when we got to that.”
President Williams acknowledged the recent uptick in usage of the Fed’s Standing Repo Facility (SRF). He pointed out that the SRF serves as a “shock absorber” in an ample reserves regime, helping ease pressure in the market for repurchase agreements, or repos, on particular days.
Regarding how the Fed uses its monetary policy toolkit, President Williams said the federal funds rate remains the FOMC’s primary policy tool. “[T]hat hasn’t changed, and that will continue to be true,” he said. “So from that point of view, using asset purchases. . .is always a secondary tool that you use when necessary. I think our new framework statement made that very clear.”
Looking ahead, he said, “I expect it won’t be long before we’ll get to ample reserves.” He noted that once the level of reserves reaches ample, the Fed will start making reserves management purchases to keep pace with the growth in liabilities such as currency. “We need to be buying assets in order to stop reserves from continuing to fall,” he said.
Brian Manning is a corporate communications specialist in the Communications and Outreach Group 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.
