Federal Reserve Outlook on Rate Cuts

By Michael S. Derby

(Reuters) – Federal Reserve Bank of New York President John Williams indicated on Thursday that he anticipates further rate cuts as inflation pressures ease.

> “Based on my current forecast for the economy, I expect that it will be appropriate to continue the process of moving the stance of monetary policy to a more neutral setting over time,” said Williams in prepared remarks for his address at Binghamton University, New York.

Regarding future Fed actions, Williams stated, “the timing and pace of future adjustments to interest rates will be based on the evolution of the data, the economic outlook, and the risks to achieving our goals.”

His comments followed the release of consumer inflation data, which showed that the pressures influencing the central bank to implement higher short-term rates continue to subside. Last month, the Fed reduced its overnight interest rate target by half a percentage point to between 4.75% and 5% and signaled the possibility of more rate cuts. Market participants are currently focused on the data to gauge how much further the central bank might lower rates as the year progresses.

Williams characterized the economy as robust, noting solid growth amid a better-balanced job market. He projects the economy to grow by 2.25% to 2.5% this year, averaging 2.25% growth for the next two years. He expects unemployment to rise to 4.25% by year-end and remain steady through 2025. Williams anticipates inflation to decrease to 2.25% this year and approach the Fed’s 2% target next year.

He acknowledged, “there’s still some distance to go to reach our goal of 2 percent, but we’re definitely moving in the right direction.”