John Williams, president of the New York branch of the Federal Reserve, commented today on the US economy and monetary policy. Williams forecasts interest rate cuts later this year, but stressed that inflation has begun to negatively surprise policymakers. USDIDX futures on dollar index erased some of the dynamic gains and contract is currently losing 0.07%.
- The US economy is now in a good place. However, I don't know what's ahead for US monetary policy
- It's better to focus on the inflation trend, because recent data was disappointing.
- Inflation fell faster than expected last year, but the process of lowering it has encountered some obstacles.
- The US economy has benefited from positive supply shocks. I see "a lot of uncertainty" about the economy.
- Inflation is approaching 2%, but I expect further jumps. However, Fed has made "significant progress" in bringing inflation down.
- The risk between inflation and unemployment is approaching a better balance. Inflation this year will be probably at 2.25-2.5% level
- I expect the unemployment rate to rise to 4% this year, and inflation to return to 2% next year. US GDP is likely to grow by 2% this year.
- Inflation in rents is very strong, but I don't see signs of a bubble; also the labor market remains strong.
- A slowdown in balance sheet reduction does not mean the whole process is over. The data suggest that reserve levels remain high.
- The overall outlook is uncertain; the Fed must be data-dependent.
- Commercial real estate is a concern; it will take some time to resolve. But I see no risk of an overall financial stability crisis from commercial real estate.
- Monetary policy is well positioned to meet the Federal Reserve's policy target
USDIDX (H1 interval)
