By Michael S. Derby
(Reuters) – New York Federal Reserve President John Williams said on Friday the U.S. central bank’s monetary policy is in the right place at this time, given how the economy is performing in an environment where the outlook is quite uncertain.
“There is certain uncertainty in monetary policy” and “the current modestly restrictive stance of monetary policy is entirely appropriate given the solid labor market and inflation still running somewhat above our 2% goal,” Williams said in prepared remarks to be delivered at an event in the Bahamas. The current setting of monetary policy also leaves the Fed ready “to adjust to changing circumstances that affect the achievement of our dual-mandate goals.”
Williams was speaking two days after Fed policymakers left the central bank’s benchmark interest rate in the 4.25%-4.50% range and signaled they still expect to lower rates at some point later this year.
At the same time, Fed officials acknowledged considerable uncertainty about the outlook amid the Trump administration’s dramatic and often chaotic policy changes, which they expect to help drive up inflation pressures, at least in the short term.
Williams did not say in his formal remarks what he expects for Fed policy as the year progresses. He noted that the economy started 2025 on a good footing and said that while the cooling of inflation has been a bumpy process, the job market is in better balance and is not itself a driver of price pressures.
Looking ahead, Williams said he sees growth slowing in part because of lower immigration rates. But he added, “it’s hard to know with any precision how the economy will evolve.”
“Uncertainty is high, and there are many scenarios that could play out, depending on fiscal and trade policies and geopolitical and other developments,” he said, adding that “it is hard currently to assign probabilities to these scenarios.”
Williams also addressed recent data that has tended to point to a notable rise in the expected path of inflation over the near term, which has added to other data indicating a souring in the public mood as President Donald Trump’s administration aggressively downsizes the federal government and cuts spending.
“There are no signs of inflation expectations becoming unmoored relative to the pre-pandemic period,” Williams said, while noting “in the past two months, we have seen clear signs of a broad-based increase in short-term inflation expectations” that does not extend to longer-dated expectations. “This analysis indicates that households expect an inflation shock will gradually decay over the ensuing years,” he said.
Williams also weighed in on the Fed’s announcement at this week’s policy meeting that it would slow the pace of its balance sheet drawdown to negligible levels as it navigates government financing volatility and some emerging signs of tightness in money markets. He said “this week’s decision to slow it further is a natural next step” in an effort that’s shaved just over $2 trillion off Fed holdings.
(Reporting by Michael S. Derby; Editing by Paul Simao)
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