Williams: High Uncertainty, Interest Rates Lack a Clear Path
Federal Reserve Bank of New York President John Williams said high uncertainty makes it inappropriate for the central bank to provide firm guidance on the future direction of interest rates, although he still sees room for rate cuts in the longer term. Williams believes that when inflation returns to a 2% level, nominal interest rates will need to be lowered to prevent real interest rates from rising "mechanically."
These comments come amid the risk of a prolonged "supply shock" from the war in the Middle East, which could simultaneously raise inflation and depress economic activity. Williams said price pressures from the war are already visible not only in energy but also in non-energy goods and services through spillover costs such as airfares, food, fertilizer, and other consumer products. If energy supply disruptions subside quickly, the impact could be partially reversed this year, but a longer crisis could potentially be more severe.
Williams assessed that the current monetary policy stance is "well positioned" to balance the inflation and employment mandates, in line with several Fed officials who have signaled a preference for holding rates at their April 28-29 meeting. He still projects the US economy to grow 2%–2.5% this year, unemployment in the 4.25%–4.5% range, and headline inflation to end 2026 at 2.75%–3% before returning to the 2% target in 2027. For the market, the key message is that the Fed will be more data-dependent amid energy volatility: the duration of energy price increases, evidence of pass-through to core inflation, and labor market signals (hard data vs. consumer expectations surveys) will be the most decisive variables for the next interest rate path. (Arl)*
Source: Newsmaker.id
