Federal Reserve's Williams: "Moderate restrictions" on interest rates are appropriate
New York Federal Reserve President Williams stated that the current moderately restrictive monetary policy is appropriate and can flexibly respond to changes in the economic situation. He pointed out that the labor market is strong and inflation is slightly above the 2% target, and he expects the growth rate of the U.S. economy to slow down due to a decrease in immigration. The Federal Reserve kept interest rates unchanged and adjusted the limit on the reduction of government bonds, emphasizing that this move does not affect the monetary policy stance. Market concerns about a new round of tariffs from the Trump administration have intensified the uncertainty surrounding the economic outlook
New York Federal Reserve President Williams stated on Friday that the rapid changes in immigration, trade, and fiscal policy have a high degree of uncertainty regarding their impact on the economy, but the current monetary policy stance is appropriate, providing sufficient flexibility for the Federal Reserve to respond to changing circumstances.
At the Bahamas Macroeconomic Econometrics Conference, Williams pointed out, "Given the strong labor market and inflation still slightly above the 2% target, the current moderately restrictive monetary policy is entirely appropriate. This allows us to adjust policies calmly to ensure we achieve our dual mandate." His remarks echoed those of Federal Reserve Chairman Powell earlier this week, indicating that employment and growth are solid, and long-term inflation expectations are anchored.
Williams expects that the slowdown in U.S. economic growth this year will be affected by a reduction in labor expansion due to decreased immigration, compared to 2024. He also warned that the effects of the Trump administration's shift in trade, immigration, and regulatory policies remain unclear, exacerbating the uncertainty of the economic outlook.
The Federal Reserve maintained interest rates unchanged for the second consecutive week, having cumulatively cut rates by 100 basis points at the end of last year. Policymakers raised inflation expectations for this year while lowering growth forecasts but maintained a median expectation of a 50 basis point rate cut within the year. The dot plot shows that eight officials support a maximum of one rate cut or no rate cut this year.
The Federal Reserve announced that starting in April, it will reduce the cap on Treasury bond reductions from $25 billion per month to $5 billion, while the reduction scale for mortgage-backed securities remains unchanged at $35 billion. Williams described this move as a "natural step" in the balance sheet reduction process, emphasizing that it "does not affect the monetary policy stance."
Earlier this month, Williams stated that tariffs could push up inflation, but the ultimate tax rates and economic responses are in doubt. The market is concerned that a new round of tariffs that Trump plans to announce next month will suppress growth.
As policy fog envelops the market, the Federal Reserve's "wait-and-see mode" is undergoing multiple tests