By Michael S. Derby
HARTFORD, Conn. (Reuters) – Federal Reserve Bank of New York President John Williams said on Wednesday that future monetary policy actions would be determined by economic data, as the central bank faces a high of uncertainty, largely due to possible changes in government policy.
The official also noted the rise in bond yields and said he did not view this as a sign of a fundamental change in investors’ views on the outlook for inflation.
“Monetary policy is well positioned to balance risks to our objectives” and “the path of monetary policy will depend on the data,” Williams said in a speech at the 2025 Economic and Outlook Summit. CBIA in Hartford, CT.
Williams, who is also vice chair of the Federal Interest Rate Setting Committee, pointed to the government as a key source of what is preventing it from providing guidance on the outlook for monetary policy.
“The economic outlook remains highly uncertain, particularly regarding potential tax, trade, immigration and regulatory policies,” Williams said. “Therefore, our decisions regarding future monetary policy actions will continue to be based on the overall data, the evolving economic outlook and the risks related to achieving the objectives of our dual mandate.
At the Fed’s most recent policy meeting, held last month, central bankers lowered their target range for the federal funds rate by a quarter of a percentage point, to between 4.25% and 4.5%. As part of the forecast update, they also downgraded estimates for rate cuts for the current year and raised inflation forecasts following recent data that showed continued pressures on the costs.
Donald Trump’s return to the presidency has clouded the outlook, as the president-elect campaigned on trade and immigration policies that economists say will push inflation higher and complicate the Fed’s job of bringing back inflation at 2%.
INCREASED YIELDS
As Trump’s inauguration approaches, yields on government bonds, particularly long-duration ones, have risen, signaling rising real borrowing costs. Speaking to reporters after his remarks, Williams said he did not view the change as being related to an overall reassessment of the inflation landscape.
“We haven’t seen a big movement in inflation compensation” in the market, but there appears to be a shift in how investors manage interest rate risk, as measured by the concept term premium, Williams said. bond yields appear to “reflect both the strength of available data, but also market uncertainty regarding fiscal policy issues, other policies, and global developments.”
In his official speech, Williams said the economy was in good shape and had returned to balance after the disruptions of the pandemic years. He said the process of disinflation was likely to continue, but added that it could take some time, noting that he expected a return to the 2% target “in the coming years.”
Williams also said he expects the country’s gross domestic product growth to be moderate at 2 percent, while the unemployment rate remains around 4 percent to 4.25 percent.
He also said the Fed’s balance sheet drawdown was proceeding smoothly and told reporters that reserve levels in the financial system still appear quite high, suggesting there is no imminent end to the ongoing contraction process known as quantitative tightening.
