Fed NY chief discusses economy’s uncertain outlook

Investing.com -- John Williams, President and CEO of the Federal Reserve of New York, recently addressed the Macroeconometric Caribbean Conference in Nassau, Bahamas. During his speech, he discussed the current economic landscape, highlighting its inherent uncertainty and the role of monetary policy.

Williams began by providing an overview of the U.S. economy, which he said entered 2025 on solid footing. The job market and GDP growth have been robust, driven by strong gains in labor force and productivity. The unemployment rate has stabilized, and the labor market no longer contributes to inflationary pressure.

Inflation, which reached a 40-year high of over 7% in 2022, has fallen to approximately 2.5%, slightly above the Federal Open Market Committee’s (FOMC) target of 2%. Williams stressed the future is highly uncertain, with recent data sending mixed signals and measures of policy uncertainty increasing sharply in recent months.

Williams also discussed global inflation trends, emphasizing the interconnectedness of economies. He highlighted the role of global factors in driving inflation, a dynamic that has been particularly evident in the past five years. Analysts at the New York Fed have developed a model, the Global Multivariate Core Trend Inflation (Global MCT), to better understand global inflation behavior. The model uses data from seven economies to estimate a common global inflation trend.

The CEO also addressed the role of inflation expectations, noting that well-anchored expectations are crucial for ensuring price stability during uncertain times. He stated that while short-term inflation expectations have increased, most indicators suggest that medium and longer-term expectations remain stable.

On monetary policy, Williams reported that the FOMC decided to leave the federal funds rate unchanged at 4-1/4 to 4-1/2 percent during its recent Wednesday meeting. The Committee also decided to slow the pace of reduction in its holdings of securities, which Williams emphasized does not imply any changes in the intended stance of monetary policy.

Regarding the U.S. economic outlook, Williams expects GDP growth to slow down from last year’s pace due to a decrease in labor force growth caused by lower immigration rates. He acknowledged the high level of uncertainty and the potential for various scenarios depending on fiscal and trade policies and geopolitical developments.

In conclusion, Williams affirmed his commitment to supporting maximum employment and returning inflation to the 2% objective, despite the inherent uncertainty in monetary policy.

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