NY Fed: rate policy depends on uncertainty in financial conditions

The president of the Federal Reserve Bank of New York, John Williams, said on Friday that the uncertain evolution of financial conditions will be a key factor in his reflection on the future of the central bank’s interest rate policy.

“The economic outlook is uncertain and our policy decisions will be driven by data and the achievement of our mandates of maximum employment and price stability.Williams said in the text of a speech.

“I am confident that our measures will bring inflation down to our long-term target of 2%”, he added.

But Williams, who is also a vice chair of the Federal Open Market Committee (FOMC) which is in charge of setting interest rates, declined to say what he believes awaits monetary policy in the aftermath of turbulent financial conditions linked to a series of bank failures.

When the Federal Reserve met last week and raised its overnight interest rate, it signaled that tightening financial conditions would likely weigh on growth. Some central bankers have hinted that this containment could take pressure off the Fed to raise rates well beyond their current range of 4.75% to 5%.

When reflecting on monetary policy, “I will focus especially on evaluating the evolution of credit conditions and their effects on the prospects for growth, employment and inflationWilliams said in his speech.

The remarks from the New York Fed president on Friday were the first since last week’s FOMC meeting. In that meeting, the authorities set one more increase for this year and then a stable policy for the rest of 2023.

In his remarks, Williams outlined some short-term difficulties for the economy as the Federal Reserve uses its policy to cool inflation.

The official said he expects inflation to slow to 3.25% this year. Earlier on Friday, the government reported that the personal consumption expenditures price index had fallen slightly to a year-on-year increase of 5% in February. Williams said he expects the 2% target to be reached in the next two years.

Meanwhile, he reckons the US Gross Domestic Product will grow modestly this year and faster in 2024, and that the unemployment rate, currently at 3.6%, will climb to around 4.5% over the next year.