Fed’s Williams signals support for quarter-point interest rate cuts

Investing.com — A senior Federal Reserve official voiced confidence that the central bank is now “well positioned” to achieve a soft landing for the U.S. economy. He hinted at a more gradual pace of rate cuts after September’s significant half-point reduction.

John Williams, president of the New York Fed, remarked that the “very good” September jobs report signaled the continued strength of the U.S. economy, even as inflation eased after over a year of elevated rates.

“The current stance of monetary policy is really well positioned to both hopefully keep maintaining the strength that we have in the economy and the labor market, but also continuing to see that inflation comes back to 2%,” Williams told the Financial Times on Monday.

The latest jobs data has alleviated concerns of a recession, which had loomed large over the economy as the Fed raised borrowing costs to combat the worst inflation in decades. The data has also tempered expectations of another half-point cut in November, following September’s initial reduction to 4.75-5%.

Williams, a voting member of the Federal Open Market Committee (FOMC) and a close ally of Fed chair Jerome Powell, defended the decision to cut rates in September, saying it was “right in September” and “right today,” as inflation continues to ease and the labor market shows some cooling.

“It made sense, as the chair said, to recalibrate policy to a place that is still restrictive and is still putting downward pressure on inflation, but significantly less so,” he noted. “I don’t want to see the economy weaken. I want to maintain the strength that we see in the economy and in the labour market.”

When asked about future rate cuts, Williams referred to the Fed’s “dot plot,” which suggests two quarter-point cuts in the remaining meetings of the year, calling it a “very good base case.”

Williams emphasized that decisions would be data-dependent, rather than following a predetermined path. He also highlighted that the half-point September cut was not “the rule of how we act in the future.”

He reiterated that the goal is to bring rates to a “neutral” setting, where they no longer restrain demand. However, he acknowledged that precise predictions about the final destination of interest rates are challenging.

Should inflation decline more rapidly, Williams said it would warrant quicker policy normalization. On the other hand, if inflation were to stall, rate cuts would slow accordingly.