“My overall view of the economy basically hasn’t changed based on one month of data,” Williams said in an interview that was conducted on Thursday and published on Friday, noting that inflation’s progress toward the Fed’s 2% goal can be “a little bit bumpy,” but that overall it and the economy more broadly are headed “in the right direction.”
“At some point, I think it will be appropriate to pull back on restrictive monetary policy, likely later this year,” Williams said, remarks that are in synch with those of other Fed policymakers who have been sounding somewhat cautious lately about starting to cut rates without more confidence on inflation’s downward trajectory.
As vice chair of the Fed’s rate-setting Federal Open Market Committee, Williams is an influential voice at the U.S. central bank, which has held its benchmark overnight interest rate steady in the 5.25%-5.50% range since last July.
He did not give any sense of his preferred timing for the start of rate cuts, nor of exactly what would trigger them, apart from an overall assessment that inflation is indeed headed sustainably toward the 2% target.
“It’s really about reading that data and looking for consistent signs that inflation is not only coming down, but is moving towards that 2% longer-run goal,” he told Axios. “I don’t think there’s any formula, or one indicator, or something that will tell you that. It’s really looking at all the information together, including these signs in the labor market and others and extracting the signal.” While a material significant change in the economic outlook could require a rethink, he said, “rate hikes are not my base case,” Axios cited him as saying.
BALANCE SHEET
Fed policymakers are expected to start in-depth discussions next month about slowing the central bank’s ongoing reductions to its $7.63 trillion balance sheet.
The goal, Williams said, “is to make sure that we get a nice, smooth process of continuing to reduce the balance sheet down to the ultimate level that we want to get to and allowing us to monitor and analyze and understand how that reduction in the balance sheet is meeting that test that we set out for ultimately stopping.”
In other words, he said, slowing the balance sheet reductions will give the Fed time to assess where and when it ought to stop altogether, and help it avoid the kind of market disruptions that occurred when it was trimming its balance sheet in September 2019.
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