Federal Reserve Insights from John Williams

Investing.com — John Williams, President of the Federal Reserve Bank of New York, expressed expectations for additional interest rate cuts during a CNBC interview on Friday. However, he emphasized that these decisions will be heavily influenced by incoming data and the current policy, which is exerting restraint on the economy's momentum.

According to Williams, the baseline trajectory is moving towards neutral rates. He underscored the importance of being data-dependent and taking the time to thoroughly assess the data, the outlook, and the risks. He added that the central bank is in a good position for what lies ahead.

His comments came after the Federal Open Market Committee (FOMC) meeting earlier in the week. The officials met market projections and reduced their overnight target rate by a quarter percentage point, to a range of 4.25% to 4.5%. In addition, the Fed scaled back its estimates of how much it will cut rates next year.

Williams also revealed that he has begun to consider the proposed policies of President-elect Donald Trump in his economic projections. He believes that fiscal policy, immigration, and other policies are significant drivers in shaping the economic outlook. However, he emphasized the presence of a lot of uncertainty.

Fed Chair Jerome Powell had previously stated on Wednesday that some officials had started to preliminarily account for potential fiscal policy changes in their forecasts. Earlier in the week, the Fed had lowered its benchmark policy rate by a quarter percentage point, to a range of 4.25% to 4.5%. This was the third consecutive rate cut, but Powell indicated that the pace of reductions is likely to slow.

The policymakers estimate they will lower rates twice in 2025, according to the median projection released on Wednesday. This is in contrast to the four cuts they forecast in September, reflecting officials adjusting their estimates for where inflation will be at the end of 2025.

Williams spoke after new data revealed that the Fed’s preferred inflation measures had risen less than economists had anticipated. Prices, excluding food and energy, increased 0.1% in November, the smallest monthly advance since May. He described the latest inflation data as encouraging and stated that the central bank's policy is well positioned, albeit somewhat restrictive.

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