Federal Reserve Bank of NY CEO Continues to Say Economy Must Hit Inflation Target of 2% Before Rate Cuts

GARDEN CITY—Yesterday, Federal Reserve Bank of New York President and CEO John Williams in a speech before the Long Island Association here, reiterated the position he gave in a speech in White Plains in January—the inflation rate needs to get down to 2% before the Fed should consider changing its restrictive monetary policy.

Williams, in prepared remarks, noted that the economy has come a long way in terms of wage and price growth, but said, “The economy is strong, imbalances are diminishing, and inflation has come down but remains above our 2% longer-run target.” He related that as the inflation rate continues to fall, the nation continues to have low levels of unemployment and data appears to show a strong and more balanced labor market.

In a speech in Downtown White Plains before business leaders in January, Williams said that he was focused on getting the inflation rate down to the Federal Reserve Board’s 2% target. His view two months later has not changed and therefore he is unlikely to recommend any rate cut at the Federal Reserve Board’s next meetings in mid-March.

“Price stability is the bedrock upon which our economic prosperity stands,” Williams told the Garden City gathering. “While the economy has come a long way toward achieving better balance and reaching our 2% inflation goal, we are not there yet. I am committed to fully restoring price stability in the context of a strong economy and labor market.”

The recent data is positive, but there are some headwinds as well, Williams related. The New York Fed’s measure of underlying inflation called the Multivariate Core Trend inflation (MCT). was 1.8% prior to the pandemic, slightly below the FOMC’s 2% inflation target. As inflation rose following the pandemic and the onset of Russia’s war on Ukraine, it climbed sharply, peaking at about 5.5% in June of 2022.

Since then, the MCT has fallen significantly, reaching 2.3% in December, reflecting declines in all the major categories of core inflation. “Like the flight path the Apollo missions took to the moon and back, the MCT’s return trajectory is a mirror image of its rise. But, we still have a ways to go on the journey to sustained 2% inflation,” he said.

Williams predicted that GDP growth to slow to about 1.5% this year, and the unemployment rate to rise modestly, peaking at around 4%.

“I expect inflation to continue its return journey to 2%, although there will likely be bumps along the way, as we saw in the most recent Consumer Price Index data. To be specific, I expect PCE inflation to be around 2% to 2.25% percent this year and 2% next year.

He said the risks to his forecast could be if inflation unexpectedly rises or consumer strength fades more quickly than he anticipates. He recalled, “Like traveling to the moon and back, inflation shot up, then came back down.”

Looking ahead, Williams said, “As we navigate the remainder of this journey, I will be focused on the data, the economic outlook, and the risks, in evaluating the appropriate path for monetary policy that best achieves our goals. Or, to paraphrase the words of the astronaut Alan Shepard, we’ll assess incoming data until it’s clear all systems are go.”