New York Fed president sees continued inflation drop

Central bank's 2% target remains out of reach

New York Fed president sees continued inflation drop

Federal Reserve Bank of New York president John Williams expressed optimism about the ongoing decline in inflation, citing recent data that surpassed expectations, during a speech in Hartford, Connecticut.

Williams acknowledged that while inflation is moving lower, the central bank’s 2% target remains out of reach, and further progress will take time.

The latest consumer price report from the Bureau of Labor Statistics showed a surprise dip in underlying inflation for the first time in six months.

The figures provided some relief to financial markets, which had grown increasingly concerned about inflation, as evidenced by rising yields on 10-year Treasury notes.

Investors, now factoring in the report, are predicting a 0.5% interest rate cut this year, after the Federal Reserve lowered rates by 1% in the final months of 2024. These projections align with forecasts issued by Fed officials last month.

Despite a slight uptick in consumer inflation expectations, partly due to potential impacts from the incoming Trump administration’s proposed policies, such as higher tariffs, Williams downplayed these concerns.

“Survey- and market-based measures show that inflation expectations remain well anchored,” Williams said, highlighting a New York Fed's recent survey, which indicated that inflation expectations have remained stable within pre-pandemic ranges.

In addition, labor market indicators suggest continued strength, reducing the urgency for further rate cuts.

A report from the Bureau of Labor Statistics, released January 10, showed an increase of 256,000 nonfarm payrolls in December, the largest gain in nine months, while the unemployment rate dipped to 4.1%.

As the permanent voting member of the Federal Open Market Committee, Williams holds a key role in shaping rate decisions, giving him significant influence over the central bank's policy direction.

He emphasized that the future path of monetary policy will depend on data, acknowledging that uncertainty remains, particularly regarding fiscal, trade, immigration, and regulatory changes.

What do you think should be the Federal Reserve’s next move on interest rates? Let us know your opinion in the comments.