In remarks in New York City on May 4, New York Fed President John C. Williams spoke about how the Federal Open Market Committee (FOMC) is working to achieve its dual mandate goals of maximum employment and price stability at a time of great uncertainty. He also discussed the U.S. economy and monetary policy and gave his economic outlook.
He said:
“Right now, the future is difficult to see, and the risks to both sides of our mandate have increased. The extent and duration of the effects of supply disruptions and higher energy prices that are emanating from the Middle East conflict are key factors that will shape the global economic outlook. We simply can’t know how this will play out.”
“The elevated levels of inflation, mixed signals from the labor market, and heightened uncertainty from the Middle East conflict present 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.”
“Despite the uncertainty, we have a mission. I am steadfastly committed to supporting maximum employment and bringing inflation down to our 2 percent longer-run goal on a sustained basis.”
President Williams said the U.S. economy has remained remarkably resilient, despite changes in trade and other government policies that started a year ago, followed by “significant and unpredictable risks to economies across the globe” stemming from the start of the Middle East conflict earlier this year.
“Consumer spending has held up, and business investment has remained robust, fueled in large part by AI-related outlays,” he said. “These factors have helped offset declines in spending on residential construction and by the federal government.”
In discussing the employment side of the Fed’s dual mandate, President Williams said that the labor market continues to show conflicting signs. “Much of the hard data points to stabilization, while some of the soft data suggest continued gradual slowing.”
“Although this dissonance in the hard and soft data may reflect the effects of a low-hire, low-fire labor market, it bears continued close monitoring for signs that conditions are shifting,” he said.
Meanwhile, overall inflation—as measured by the Personal Consumption Expenditures price index—rose to 3-1/2 percent in March. President Williams said the combination of higher tariffs and energy prices has contributed about a percentage point to that figure.
President Williams said he expects inflation to remain above the FOMC’s longer-run 2 percent goal for the next few quarters. While he anticipates the passthrough of current tariffs to prices to be mostly completed in the next few months, he also expects there will be a new round of tariffs, which would put additional upward pressure on import prices.
At the same time, the Middle East conflict has brought about a surge in oil and other energy and non-energy input prices, as well as other pass-through costs. Notable supply-chain disruptions have also emerged and “echo the severe shortages and supply disruptions that the world economy experienced in 2021 as it emerged from the pandemic,” President Williams said.
However, he noted there are some positive signs. Inflation expectations have remained well anchored, underlying inflation outside of imported goods and energy has so far remained stable, and there are still no indications that significant second-round effects from tariffs are spilling over to the rest of the economy. And unlike 2021, the labor market is not adding to inflation pressures.
Even so, President Williams said the economic outlook remains highly uncertain, and the Middle East conflict “could result in a larger and broader-based supply shock that has more severe adverse consequences for inflation and economic activity.”
“In assessing the future path of monetary policy, my views, as always, will be based on the evolution of the totality of the data, the economic outlook, and the balance of risks to the achievement of our maximum employment and price stability goals,” he said.
In terms of his economic outlook, President Williams said:
- His base case is for inflation to be about 3 percent this year, before dropping to the FOMC’s 2 percent target in 2027, as the effects of tariffs and energy prices move into the rearview mirror.
- He anticipates real GDP growth to be between 2 and 2-1/4 percent this year and next.
- With growth around its trend pace, he expects the unemployment rate to remain in its recent range of 4-1/4 to 4-1/2 percent.
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.
