During an event sponsored by the New York Association for Business Economics, John Williams, President of the Federal Reserve Bank of New York, defended the current tight monetary policy stance. He also commented on the impact of tariffs on inflation and economic growth forecasts.
Defense of Fed's Tight Monetary Policy
In his remarks, Williams stated that current tariffs, both imposed and recently announced, are expected to raise inflation in the coming months. He noted, "Although we are only seeing relatively modest effects of tariffs in the hard aggregate data so far, I expect those effects to increase in the coming months. Maintaining this modestly restrictive stance of monetary policy is entirely appropriate."
Expectations for Rate Cuts in September
Despite worries about inflation, the Fed has not raised its benchmark interest rate through the first half of 2025. However, there is increasing confidence in the market that the Fed may start cutting rates as soon as September. Williams warned that such expectations may be premature.
Predictions of Economic Slowdown and Labor Market Shift
Williams also laid out a less optimistic outlook for the wider economy, predicting that US economic growth will slow to about 1% in the coming year. He emphasized that the unemployment rate is likely to climb to around 4.5%, signaling a cooling labor market.
Thus, John Williams underscored the importance of maintaining a tight monetary policy amid rising inflation and global economic uncertainty.
