(Bloomberg) — Federal Reserve Bank of New York President John Williams said the central bank will likely start lowering interest rates this year if inflation continues to gradually come down.
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Williams said monetary policy is in a good place, and pointed to the enduring strength of consumers and the broader economy.
“We will need to start a process at some point to bring interest rates back to more normal levels, and my own view is that process will likely start this year,” Williams said Monday in an interview with Bloomberg Television’s Michael McKee.
A key inflation measure rose by more than economists expected for a third straight month in March, heightening fears that progress on cooling price pressures is stalling out. Williams said he didn’t see recent inflation data as a “turning point” but added the figures will affect his opinion and forecasts.
Expectations for monetary policy have been shifting toward a later start to Fed rate cuts. Traders are no longer fully pricing in a rate cut before November, while at the start of the year, cuts beginning in March were fully priced in.
The New York Fed chief said officials are watching the unfolding situation in the Middle East “very carefully,” though noted he didn’t see it as a major driver of the US outlook. Iran launched a retaliatory missile and drone attack on Israel over the weekend, a destabilization that threatens to spark a broader conflict in the Middle East.
Fed officials narrowly penciled in three rate reductions in their projections released last month. Williams said last week that while the central bank has made tremendous progress toward better balance on its inflation and employment goals, there’s no need to cut in the very near term.
Balance sheet
On the balance sheet, Williams said it’s a prudent course of action for officials to start slowing the pace of its unwind, a process known as quantitative tightening, or QT, while acknowledging that the reduction is going as planned.
Policymakers generally favored slowing the pace at which they’re shrinking the central bank’s asset portfolio by roughly half, minutes from the March 19-20 gathering showed.
“By slowing, we will be able to assess and analyze as we essentially get to an ample reserves kind of world that we are aiming for,” he said.
—With assistance from Michael McKee.
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