In remarks delivered at the Council on Foreign Relations, New York Fed President John C. Williams spoke about the economy, supply and demand balance, and bringing inflation back down to the Federal Open Market Committee’s (FOMC’s) 2 percent longer-run goal. He also discussed the progress made toward the Federal Reserve’s dual mandate goals of maximum employment and price stability, as well as the path ahead for monetary policy.
He said:
“The significant progress we have seen toward our objectives of price stability and maximum employment means that the risks to the two sides of our dual mandate have moved into equipoise.”
“The current restrictive stance of monetary policy has been effective in restoring balance to the economy and bringing inflation down.”
“With the economy now in equipoise and inflation on a path to 2 percent, it is now appropriate to dial down the degree of restrictiveness in the stance of policy by reducing the target range for the federal funds rate.”
“[O]ur decisions will be data-dependent, with a keen eye on the achievement of our maximum employment and price stability goals.”
In his speech, President Williams began by explaining that supply and demand imbalances have dissipated, labor market conditions have eased, and inflation has come down significantly. He noted that many factors contributed to this favorable set of circumstances, “including the Federal Reserve’s strong actions to restore price stability.”
He also revisited a previously discussed analogy of an “inflation onion,” where each layer represents a major category of inflation. “While each inflation layer normalized at a different speed, they all moved in the right direction,” he said. “This broad-based downward movement has brought the overall inflation rate back down closer to our 2 percent longer-run goal.”
Turning to the labor market, he remarked that even as the economy has grown at a solid pace, “a wide range of indicators have pointed to a continued normalization in the labor market following the red-hot period in 2021 and 2022.” He added that, “the data indicate that the labor market is now roughly in balance and therefore unlikely to be a source of inflationary pressures going forward.”
“The accumulated evidence has increased my confidence that inflation is moving sustainably toward 2 percent,” President Williams said. “Looking ahead, with inflation moving toward the target and the economy in balance, the stance of monetary policy can be moved to a more a neutral setting over time depending on the evolution of the data, the outlook, and the risks to achieving our objectives.”
He closed by emphasizing that the “outlook remains uncertain” and said that he will be “attentive to signs of a shift in economic conditions.”
In terms of his forecast for the economy, President Williams expects:
- GDP growth this year to be around 2 to 2-1/2 percent.
- The unemployment rate at the end of this year to be around 4-1/4 percent, and thereafter to move gradually down to his estimate of its longer-run level of 3-3/4 percent.
- Overall PCE inflation to moderate to around 2-1/4 percent this year and to be near 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.
