Federal Reserve Bank of New York President John Williams told reporters in New York that the level of uncertainty around the economic outlook constrains what central bankers can responsibly say about the future path of interest rates.
"It’s not a time to try to give strong forward guidance" he said after a speech, citing both the general economic uncertainty and the impact of the Middle East war as reasons for caution. Williams reiterated a conditional view on easing: "If inflation comes back to 2%, 'I do think it will be appropriate to bring interest rates down, but that’s not where we are today,'" he said.
Williams described the current stance of monetary policy as appropriately placed for the moment. He added a near-term outlook on price pressures, saying that inflation will be well above 3% over the next few months.
The New York Fed president warned that the duration of the armed conflict matters for the size of its economic consequences: the longer the conflict lasts, the bigger the economic impact will be.
On the interaction between market pricing and economic forces, Williams noted that pricing appears to reflect two competing narratives - a resilient U.S. economic outlook on one hand and uncertainty stemming from the war on the other. He said part of market strength can be traced to what he described as reduced U.S. exposure to oil shocks.
Williams also characterized the current war-related shock as not only a price shock but an availability shock, saying it affects prices and also "unavailable commodities." He emphasized the continued importance of well-anchored inflation expectations in the conduct of policy.
When asked directly about risks to the outlook, Williams pointed to cybersecurity as the specific concern that keeps him awake at night.
Context and takeaways
- Williams stressed limited forward guidance given elevated uncertainty tied to the economy and the Middle East conflict.
- He maintained that the Fed's policy setting is appropriate today and that rate cuts would be appropriate only if inflation returns to 2%.
- Near-term inflation is expected to be above 3%, and prolonged conflict would increase economic strain.