Headline

FED’S WILLIAMS: WE AREN’T REALLY TALKING ABOUT RATE CUTS RIGHT NOW
FED’S WILLIAMS: WE ARE AT OR NEAR RIGHT PLACE FOR MONETORY POLICY
FED’S WILLIAMS: IT’S PREMATURE TO EVEN BE THINKING ABOUT TIMING OR RATE CUTS
FED’S WILLIAMS: WE ARE NOT READY TO SAY WHEN THE BALANCE SHEET WIND DOWN STOPS

more headlines Fed's Williams: The market reacting maybe more strongly than forecasts show
Fed's Williams: We will need to move policy back to more normal levels over time
Fed's Williams: Big market moves are a pattern for last year
Fed's Williams: Market reactions to all news has been quite large
Fed's Williams: The Fed must be ready to hike again if needed
Fed's Williams: We must be prepared for unexpected events
Fed's Williams: My base case for the economy is good, inflation is coming down
Fed's Williams: I am still highly uncertain for the economy, and inflation
Fed's Williams: Fed rate cut views depend on individual officials' views
Fed's Williams: I am not speculating on what will happen on rates
Fed's Williams: I'm focused on whether rate policy is in right place

Replay

Q&A Text

Steve Liesman: Start with the question I’m getting from a lot of people in the markets and the questions I have myself, which is – what changed between, say, the end of November when it sounded like you and the chair were both saying, hey, it wasn’t time to talk about rate cuts, and then what happened at the meeting where it sounded like the committee was talking about rate cuts.

John Williams: First of all, we aren’t really talking about rate cuts right now. We’re very focused on the question in front of us, which as Chair Powell said, have we gotten monetary policy to restrictive stands to ensure inflation comes back down to 2%? That’s the question in front of us and what we’ve been really thinking about for the past five months and I think we’ll continue to think about for some time.

That’s the topic of discussion for the committee. That’s a decision we made, to hold the fed funds target where it is. Clearly, we all put in projections for interest rates and inflation and growth and unemployment as well. Those are individuals thinking about what may happen over the next three years on a baseline path. The discussion really from the FOMC right now, do we have monetary policy today in the right place, not speculating on what will happen at some point in the future.

Steve Liesman: But the chair said you had a discussion about rate cuts?

John Williams: We have projections. We submit summaries of those projections, they’re shared with committee participants and some committee participants talk about their projections, but this is not the topic of discussion about what are we going to do, or plans around this. Again, the committee doesn’t have plans around that. This is really each committee participant thinking, okay， over the next three years, if the economy evolves in a certain way, what do you think of the appropriate path where interest rates are.

Steve Liesman: So what was the answer to the question? Are you sufficiently restrictive?

John Williams: I think in the – this gets to the uncertainties we face. It’s still a highly uncertain situation, both in terms of inflation and progress in the economy. Right now I think the base case, speaking from my own view, the base case is looking pretty good. Economy is strong, unemployment is low. When you think about how we have gotten policy to kind of the appropriate place, it’s looking like we are at or near that in terms of sufficient restrictive.

But things can change. One thing we’ve learned, even over the past year, is that the data can move and in surprising ways. We need to be ready to tighten policy further, if inflation, the progress of inflation were to stall or reverse, and, you know, the committee is clearly focused in making sure we bring inflation back down to 2% on a sustained basis. We need to be data-dependent and make the right policy decisions depending on what transpires.

Steve Liesman: The market sure thought you were talking about rate cuts and projecting rate cuts. What do you make of how the market reacted both in a huge downdraft in bond yields and updraft in stock prices?

John Williams: One thing that has been really interesting over the past year… We track this obviously very closely here at the New York Fed is the market reactions to all kinds of news, economic data, all types of events, and has been much bigger in magnitude, much larger than historically is normal. That reflects in large part the uncertainty, unusual nature of the situation we face. So the fact that we’re seeing big market reactions to pretty much everything has been a pattern that we’ve seen over the year. In terms of what we’re seeing, market saying, well, the FOMC is going to do this, or this many rate cuts this year. I would just point people back to the economic projections that we put out.

If you look at the median projection, over the next three years, the median shows that basically… gradually over the next three years the restraint, policy restraint put in place being dialed back gradually over three years. That’s the view of the committee. I think it’s consistent with our view of how the economy’s going to evolve. I think the market in a way is kind of reacting very strongly, maybe more strongly than what we were showing in terms of our projections.

Steve Liesman: Do you believe the Federal Reserve can cut interest rates next year?

John Williams: Well, again, we, of course, we can do whatever is appropriate for achieving our goals. The way I think about this is – if we get the progress I’m hoping to see on inflation, on the economy, of course it will be kind of natural for us to move monetary policy over an extended period of time, over a few years, back to more normal levels.

That has to be in the context of us being confident that inflation is moving sustainably toward our 2% goal. It’s absolutely essential to see that, but under those conditions, my baseline forecast, of course, we need to move policy back to normal levels over a period of time. We’ve got to be data-dependent and able to adjust according to what we’re seeing.

Steve Liesman: When I look at the summary of economic projections I see funds rate is projected to decline almost as much as you project the core PCE to decline. Do you see rates coming down simply to match the decline of inflation next year?

John Williams: I don’t think the monetary policy that simplistically. One of the principles of monetary policy, is to focus on real interest rates, which are nominal interest rates adjusted for inflation I think about… in terms of the totality of the data, what’s happening in terms of our maximum employment mandate, what’s happening in terms of inflation, what’s how what’s the outlook look like, and what are the balance of risks. To my mind, it’s not as simple as that and really about all of the information that suggests over time, as the economy, hopefully, you know, moves in operation right back to our 2% goal, with the economy still being strong and labor market strong it will over time, we’ll want to get monetary policy back to more normal levels.

Steve Liesman: I have to ask more openly. Rates coming down by March. How do you respond?

John Williams: Well, I just think it’s just premature to be even thinking about that question. Right now the question we’re thinking about at the FOMC, do we have the level of rates right as chair Powell said, there’s these phases of how we’ve thought about monetary policy you know have we got this the stance of policy uh sufficiently restrictive and then of course we’ll be watching the data to make sure that we’re getting that appropriate policy. To me the debate is not… it is premature to really think about like what we will be doing sometime well into the future. That’s not the question that’s in front of us.

Steve Liesman: That’s what markets do. Right? Try to forecast what’s going to happen six months down the road. Not necessarily three years. It’s not crazy to be thinking, hey, we have inflation under control, as you’ve suggested. And as Governor Waller said, you’ve conceded sort of that inflation comes down, the funds rate would come down to, what? Remain restrictive, as restrictive as you’ve been or do you have to be as restrictive as you’ve been?

John Williams: Well, Steve, as you said, this is what market participants do. This is what commentators do. What we need to do is focus on our job of achieving maximum employment price stability. That’s what we’re focused on. We’ve followed a strategy for the past two years to make sure first, that we got monetary policy to a restrictive stance, and now making sure the restrictive policy is getting the job done. And as we watch the data and see how the economy unfolds and how the risks unfold, we’ll decide on what we need to do at that point.