In remarks at the Federal Home Loan Bank of New York’s annual symposium on April 16, New York Fed President John C. Williams discussed the regional and U.S. economies, as well as the ways the Federal Open Market Committee (FOMC) is navigating through uncertainty to balance the risks to achieving its dual mandate goals of maximum employment and price stability. He also gave his economic outlook.
He said:
“The Middle East conflict has intensified the uncertainty around our local, regional, and national economies. At the same time, economic data are showing some unusual dynamics in the form of mixed signals coming from the labor market and crosscurrents in inflation.”
“The inflation crosscurrents, mixed messages from the labor market, and heightened uncertainty from the Middle East conflict create gravitational forces that define the economic environment we face today. One thing that is certain is my unwavering commitment to supporting maximum employment and bringing inflation to our 2 percent longer-run goal on a sustained basis.”
“This is an unusual set of circumstances, but the current stance of monetary policy is well positioned to balance the risks to our maximum employment and price stability goals.”
President Williams said that over the past year, both the regional and national economies have been resilient to uncertainty from a number of sources, including trade and other government policies. Still, while hard data point to a stabilization in the balance between supply and demand in the labor market, “some of the soft data suggest a labor market that continues to gradually soften,” President Williams said.
He said that it remains a low-hire, low-fire labor market that is “reasonably good . . . if you have steady employment” but “not so good if you are looking for a job or worried you may need one soon.”
On the price stability side of the Fed’s dual mandate, President Williams discussed inflation crosscurrents: the effects of higher tariffs, which boost core inflation, and the impacts of higher energy prices, which increase overall inflation.
President Williams said the effects of tariffs are contributing between one half and three quarters of a percentage point to the most recent inflation reading of 2.8 percent, as measured by the Personal Consumption Expenditures price index. But he said over the next few quarters, those effects should begin to wane, which would create some downward momentum in core inflation.
In addition, he said that “assuming energy supply disruptions ease reasonably soon, energy prices should come down, and these effects should partially reverse later this year. However, the conflict could also result in a large supply shock with pronounced effects that simultaneously raises inflation—through a surge in intermediate costs and commodity prices—and dampens economic activity. This has begun to play out already.”
Although the economic outlook is highly uncertain, President Williams said monetary policy is well positioned to achieve the Fed’s dual mandate goals of maximum employment and price stability. In assessing the future path of monetary policy, President Williams said that his views, as always, “will be based on the evolution of the totality of the data, the economic outlook, and the balance of risks” to achieving the FOMC’s goals.
In terms of his economic outlook, President Williams said he expects:
- Real GDP growth to be between 2 and 2-1/2 percent this year, reflecting a balance between factors supporting growth—such as tailwinds from fiscal policy, favorable financial conditions, and investment in AI—and those damping spending, including higher energy prices and uncertainty
- The unemployment rate to remain in its recent range of 4-1/4 to 4-1/2 percent
- And overall inflation to come in between 2-3/4 and 3 percent this year—reflecting the effects of energy price increases—before reaching the FOMC’s 2 percent longer-run inflation target in 2027 as the effects of tariffs and energy prices fade
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.
