The third-ranking official of the Federal Reserve emphasizes the importance of stabilizing inflation, and Governor Waller warns that dismissing Federal Reserve officials is detrimental to the economy

On Friday, Federal Reserve's third-in-command and President of the New York Federal Reserve, John Williams, stated that stabilizing inflation expectations near the targets set by policymakers is the "cornerstone" of Federal Reserve policy. A key lesson for central bank leaders is that "in a highly uncertain environment, maintaining well-anchored inflation expectations is extremely important."

Williams stated:

Nowadays, whether it is economic shocks, changes in government policy, or the fluctuations of globalization and de-globalization, central banks are clear: maintaining price stability is their responsibility, and they are the guardians of price stability. Central banks have earned the public's trust by effectively fulfilling their responsibilities.

It is certain that uncertainty will remain a major feature of the monetary policy environment for the foreseeable future.

Williams's remarks come at a time when the Federal Reserve faces a potential conflict in its dual mandate—maintaining price stability and achieving maximum employment. According to a survey by the New York Federal Reserve, U.S. consumers' expectations for medium-term inflation surged in April, while their views on the job market worsened.

Meanwhile, President Trump is increasing pressure on Federal Reserve policymakers to cut interest rates to mitigate the impact of tariffs on economic growth and the job market.

In an interview, Williams stated that the current discussion about "preemptive rate cuts" is "untimely," as there is still uncertainty in the current economic situation.

He also mentioned that his estimated neutral interest rate, adjusted for inflation, which neither stimulates nor suppresses the economy, is between 0.75% and 1%. Therefore, the current monetary policy remains "somewhat tight."

When discussing consumer spending, Williams noted a divergence between "positive but lagging" actual spending data and "concerning" forward-looking surveys:

Actual consumer spending performance is decent, but we are hearing increasing feedback from businesses and other channels that consumers are beginning to cut back on some discretionary spending.

Williams expects that U.S. economic growth will be "significantly below" 2024 levels by 2025, with inflation and unemployment rates also rising.

Media analysis indicates that Williams's remarks suggest he is particularly focused on the inflation aspect of the Federal Reserve's responsibilities. This aligns with recent comments from Fed Chair Jerome Powell, who pointed out that without price stability, sustained full employment cannot be achieved.

Despite the rising risks of unemployment and inflation, the Federal Reserve earlier this week kept interest rates unchanged. Policymakers are waiting for clearer economic signals to assess how a series of tough tariff measures will impact the economy.

Focus on Consumer Behavior, Not Just Their Words

In an article on Friday, "The New Federal Reserve News Agency" specifically cited Williams's comments on consumer spending. Nick Timiraos's article stated:

New York Federal Reserve President Williams noted that the U.S. economy and interest rate policy had been in a "good state" before entering the current uncertain environment triggered by abrupt tariff policies.

Williams pointed out that officials are closely monitoring consumers' actual behavior, not just their words, despite consumer confidence being low in recent months Williams stated, "American consumers have never let us down. Consumer spending is still performing well, but we are hearing more and more voices from businesses and other channels that consumers are starting to cut back on some discretionary spending. Overall, consumers are in good shape, but they are also preparing for the potential impact of tariffs."

Timiraos pointed out that during 2022, despite significant interest rate increases, consumption remained robust, while many predictions at the time suggested that consumers would eventually retreat and reduce spending.

Waller: Dismissing Federal Reserve Officials is Detrimental to the U.S. Economy

On Friday, Federal Reserve Governor Waller stated that economic stability is higher when monetary policymakers are accountable to voters and have job security.

Waller's research shows that accountability to voters can be achieved through the nomination and confirmation process; when policymakers cannot be dismissed at will, economic stability is enhanced. Having an independent policy committee set monetary policy can bring higher social welfare compared to a model that is fully accountable to voters, as the latter is more likely to lead to economic instability.

Waller spoke at an event at Stanford University in California on Friday:

"I believe the current structure of the Federal Reserve has stood the test of time, and I hope this structure can continue to exist in the future. The current system achieves accountability through presidential nominations and Senate confirmations, while Federal Reserve governors have protections against being dismissed at will."

Waller's remarks came after U.S. President Trump’s continuous criticism of Federal Reserve Chairman Powell and the Federal Reserve. Recently, there was speculation about whether Trump might attempt to dismiss Powell. Although Trump has repeatedly criticized the Federal Reserve for keeping interest rates unchanged, calling for rate cuts, and has stated on social media that "the sooner Powell is fired, the better," he later claimed he would not dismiss Powell.

Under current law, Federal Reserve governors are generally protected from being dismissed at will by the president, but there remains legal controversy over whether this protection applies to the position of Federal Reserve Chairman.

Other Officials Also Weigh In

Also on Friday, Federal Reserve Governor Adriana Kugler stated that due to the continued robustness of the U.S. economy and the rising uncertainty brought about by tariffs, interest rates should remain unchanged. "Overall, the real economy remains healthy, which gives us time to continue managing inflation and ensure that inflation expectations remain well anchored."

Federal Reserve Vice Chairman Michael Barr warned that U.S. government trade policies could lead to sustained inflationary pressures and higher unemployment rates.

Beth Hammack, President of the Cleveland Federal Reserve, stated that it is reasonable for the FOMC to maintain a wait-and-see approach regarding monetary policy. The Federal Reserve is prepared to adjust policy rates when there is clear evidence of progress toward policy goals. Time is needed to observe how the economy responds to President Trump's tariff policies