Williams emphasizes focus on monetary policy and inflation targets
New York Federal Reserve President John Williams has addressed the growing speculation of a rate cut in March, dismissing it as “premature.” During an interview on CNBC, Williams stated that the current focus is on achieving a sufficiently restrictive monetary policy to bring inflation down to the target of 2%.
Fed signals potential rate cuts in 2024
Williams’ comments follow the recent announcement by the Federal Reserve signaling the end of its two-year battle against inflation. The central bank projected a series of rate cuts in 2024, prompting a surge in the markets, with the Dow Jones Industrial Average surpassing 37,000 for the first time ever.
Tempering expectations amidst aggressive rate cut bets
Despite market expectations of more aggressive rate cuts as early as March, Williams sought to temper those expectations. He referred to the notion of a March rate cut as premature and urged caution. However, the CME Group’s FedWatch tool reveals that approximately 73% of investors still anticipate at least a quarter-point cut in March.
FOMC projections indicate multiple rate cuts
The quarterly economic projections released after the Fed’s meeting indicate that the majority of FOMC officials anticipate rates falling to 4.6% by the end of 2024. This suggests the possibility of at least three quarter-point rate cuts next year. Furthermore, policymakers have penciled in additional rate cuts for 2025 and 2026.
Monitoring inflation and leaving room for further hikes
Acknowledging the easing but still elevated inflation, the Federal Open Market Committee (FOMC) stated it would closely monitor the economy to determine if further rate hikes are necessary. Fed Chair Jerome Powell noted that the inclusion of the word “any” in the statement signifies the likely peak rate for this cycle. While officials do not foresee rates increasing next year, they want to keep the possibility of further hikes on the table.
Assessing the effectiveness of monetary policy
Williams affirmed that monetary policy is working as intended, with signs of slowing inflation. The focus now is to ensure that inflation returns to the 2% target on a sustained basis.
Overall, Williams’ comments signal caution and a measured approach to rate cuts, emphasizing the importance of achieving inflation targets while also considering the possibility of further tightening if needed.