In remarks delivered at the Economic Club of New York, New York Fed President John C. Williams discussed how the Federal Reserve is working to achieve both maximum employment and price stability, the progress of getting supply and demand in better balance, and bringing inflation back down to the Federal Open Market Committee’s (FOMC’s) 2 percent longer-run goal.
He said:
“The overarching objective of monetary policy today is to bring inflation down to 2 percent over time while maintaining a strong labor market.”
“[T]he behavior of the economy over the past year provides ample evidence that monetary policy is restrictive in a way that helps us achieve our goals.”
“Overall, the risks to achieving our maximum employment and price stability goals have moved toward better balance over the past year.”
“I see the current stance of monetary policy as being well positioned to continue the progress we’ve made toward achieving our objectives.”
In his speech, President Williams said that the economy has made “considerable progress” over the past two years, and that after last year’s strong GDP and job growth, “incoming data point to a slowing, but still solid pace of growth in economic activity in the first half of this year.”
He pointed to examples such as diminishing demand-supply imbalances and inflation coming down considerably in all major categories, noting that the 12-month percent change in the personal consumption expenditures (PCE) price index fell from a 40-year high of above 7 percent in mid-2022 to 2.7 percent in the latest reading. Despite this good news, “inflation in the United States remains too high, and in recent months there has been a lack of further progress toward our 2 percent goal,” he said.
On the labor market, President Williams explained that most measures have returned to pre-pandemic levels, but that job vacancies and wage growth are still signaling a tighter labor market than before the pandemic. And on inflation, he said that the declining trend is not unique to the United States, as Canada, the United Kingdom, and European economies also experienced historically high inflation and “have similarly seen relatively rapid declines.”
In response to recent high inflation readings, President Williams countered that they are “representing mostly a reversal of the unusually low readings of the second half of last year, rather than a break in the overall downward direction of inflation.” He added that “with the economy coming into better balance over time and the disinflation taking place in other economies reducing global inflationary pressures, I expect inflation to resume moderating in the second half of this year.”
President Williams then turned to monetary policy and the Fed’s recent actions. He said, “it’s important to note that many factors beyond monetary policy influence the economy and financial markets,” including drivers of supply and demand both in the U.S. and around the world. “Therefore,” he said, “the stance of monetary policy needs to be considered in this broader context, and cannot be understood simply by looking at the growth rate of the economy, or comparing the interest rate to its longer-run level or r-star.” He sees “the current stance of monetary policy as being well positioned to continue the progress we’ve made toward achieving our objectives.”
He closed by saying that the outlook is uncertain with risks that are two-sided. “Because of this, we will continue to keep an eye on the totality of the data, so that we make policy decisions that ensure that we get inflation sustainably back to 2 percent while maintaining a strong labor market,” he said.
In terms of his forecast for the economy, President Williams expects:
- GDP growth this year to be between 2 and 2-1/2 percent.
- The unemployment rate to be about 4 percent at the end of this year, and then move gradually down to its longer-run level of 3-3/4 percent thereafter.
- Overall PCE inflation to moderate to about 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.
