Rob Kim
Even with a third straight month of sticky inflation data, New York Fed President John Williams said Thursday he expects the central bank to cut interest rates “starting this year,” while calling for a gradual and bumpy return to 2% inflation.
“I expect inflation to continue its gradual return to 2 percent, although there will likely be bumps along the way, as we’ve seen in some recent inflation readings,” Williams said in a prepared speech at the Federal Home Loan Bank of New York 2024 Member Symposium in New York.
He emphasized, though, that the Fed must continue to base its monetary-policy path on incoming economic data, as “the outlook ahead is uncertain.” We have not seen the total alignment of our dual mandate quite yet,” he said.
Williams slightly revised up his 2024 projection for the Personal Consumption Expenditures index — the Fed’s preferred inflation measure — to 2.25%-2.50% from 2.0%-2.25% in February. He also cited signs of a more “normal” jobs market, forecasting the unemployment rate to top out at 4% this year before easing gradually.
With regards to the Fed’s balance sheet, which has shrunk by about $1.5T since the quantitative tightening program started, the New York Fed chief said the Federal Open Market Committee’s decision to slow the pace of runoff “is in no way indicating an imminent cessation of shrinking the balance sheet.”
Instead, “by slowing the pace, we’re better able to monitor conditions and facilitate a smooth transition to ample reserves,” he added.