New York Fed President: "September Big Cut Not a Pace for Rate Cuts... US in Good Position for Soft Landing"

John Williams, President of the New York Federal Reserve Bank (Fed), known as the third-ranking official of the U.S. Federal Reserve System, indicated that the big cut in September (a 0.5 percentage point reduction in the benchmark interest rate) is not the standard for rate decisions, suggesting that future rate cuts could be made in 0.25 percentage point increments. He also assessed that the U.S. economy is currently in a good position for a soft landing.

In an interview with major foreign media released on the 8th (local time), President Williams stated, "The current stance of monetary policy is very suitable for maintaining the strength of the economy and the labor market," adding, "We can continue to watch inflation return to the 2% target."

Regarding the September employment report released last week, President Williams first described it as "a very good report," evaluating that "a broad assessment confirmed that the labor market is robust but very balanced." Contrary to earlier concerns about a sharp cooling of the labor market, the September employment report showed a job increase exceeding expectations, weakening the outlook for an additional big cut in November both inside and outside Wall Street.

In this interview, President Williams also emphasized that a big cut, which lowers interest rates by 0.5 percentage points at once, is not the basic pace for future monetary policy adjustments. He said, "We were very cautious in maintaining a restrictive policy, so such a readjustment (the September big cut) was reasonable," but added, "I do not see this as a rule for how we will act in the future."

When asked whether he agrees with Fed Chairman Jerome Powell’s earlier statement that the Fed’s dot plot, which projects two 0.25 percentage point cuts by the end of the year, would be the baseline case, Williams replied, "We will have more data by the next meeting," emphasizing, "It is important to make decisions at each meeting based on what is appropriate at that time."

Regarding the Fed’s move last month to enter a monetary easing cycle by lowering the benchmark interest rate by 0.5 percentage points at once, he evaluated, "The decision made in September was correct. It was right given the current situation," adding, "As Jerome Powell said, it was reasonable to readjust policy to a level that is still restrictive but somewhat more accommodative." He then referred to the Fed’s dual mandate of maximum employment and price stability, stating, "We do not want to see the economy weaken. We want to maintain the strength we are seeing in the economy and the labor market."

President Williams also stressed that the pace of monetary policy depends on what is happening with the economy, labor market, and inflation. Mentioning that he has devoted much of his life to understanding what the neutral interest rate is, he said, "Considering that inflation is recovering to 2% more quickly, it is clear that policy should normalize a bit faster," and added, "Similarly, if inflation slows down more slowly, interest rates should decline more gradually." Ultimately, he explained, it depends on the data.

When asked whether the short-term neutral interest rate might have risen compared to pre-pandemic levels, he answered, "Honestly, I do not find the concept of a short-term neutral interest rate useful," explaining, "Not because it is illogical, but because there are too many factors affecting supply and demand in the economy over the past few years." He also pointed out that while the personal consumption expenditures (PCE) price index, an inflation indicator monitored by the Fed, is expected to approach the 2% target next year, external factors such as shocks from the Middle East should be watched carefully.

This content was produced with the assistance of AI translation services.