On Thursday (November 30th) local time, John Williams, the President of the New York Federal Reserve, stated at an event that the Fed’s benchmark interest rate is already at or near its peak level and emphasized that the current monetary policy is “quite restrictive”.
As President of the New York Federal Reserve, Williams also serves as Vice Chairman of the Federal Open Market Committee (FOMC) and has permanent voting rights like other members of the Board of Governors. It can be said that in terms of monetary policy, his influence is second only to Chairman Powell. Prior to becoming President of the New York Fed, Williams served as President of the San Francisco Fed for nearly seven years.
Williams stated that currently, the Fed’s rates are “estimated to be among the most restrictive in nearly 25 years”. He expects that maintaining a restrictive stance for a considerable period would be appropriate in order to fully restore price balance and enable inflation to return on a sustained basis to their long-term target of 2%.
This statement suggests that the Fed may have completed all its rate hikes tasks. The CME Group’s “FedWatch” tool also indicates that markets now believe there is less than a 5% probability for further rate increases by this institution. Meanwhile, swap contracts predict at least one interest rate cut before May next year.
When asked about his views on interest rate cuts by media outlets, Williams expressed little concern about such predictions. He added that any decision regarding interest rate cuts would depend on future inflation and economic developments. He anticipates inflation will continue moving closer towards their target goal of 2%, with their preferred price index slightly above this level next year and approaching it more closely by 2025.
Before Thursday’s US stock market opening bell rang out, William mentioned their preferred price index – PCE Price Index – which dropped from an annualized growth rate of 3.4% down to 3%. Similarly, the core PCE Price Index fell from 3.7% to 3.5%, both in line with market expectations. “We have taken a restrictive stance and things are moving in the right direction.”
“Now we can assess whether more needs to be done,” Williams added, stating that if price pressures persist longer than he expected, “additional tightening measures may be necessary”. Like his colleagues, he also emphasized the need to continue monitoring data to evaluate whether their policy stance remains sufficiently restrictive.
The Fed’s Beige Book released yesterday showed a slowdown in economic activity in recent weeks. In response, Williams stated that he also expects next year’s economic growth to be below trend levels but still maintain some degree of positive growth.
When asked about when “quantitative tightening” (QT) would end, Williams said there is still quite a long way to go and it is difficult to predict when the balance sheet will reach a level where intervention is no longer needed.