By Michael S. Derby

NEW YORK (Reuters) – Federal Reserve Bank of New York President John Williams stated on Friday that a more balanced economy has paved the way for potential rate cuts by the central bank, depending on economic performance.

“With the economy now in equipoise and inflation on a path to 2%, it is now appropriate to dial down the degree of restrictiveness in the stance of policy by reducing the target range for the federal funds rate,” Williams said during a speech at the Council on Foreign Relations in New York. “The stance of monetary policy can be moved to a more neutral setting over time depending on the evolution of the data, the outlook, and the risks to achieving our objectives.”

However, Williams refrained from discussing the specifics regarding the timing and size of the anticipated easing, mentioning that he does not have a personal view on how significant the first rate cut might be later this month.

“It’s pretty clear we’re going to need over time to get interest rates back to a more normal level. The problem with that statement is I’m not sure what that more normal level is and I’m not sure at all about how long that should take.”

Williams spoke after the release of August jobs data, which indicated a 142,000 payrolls gain and a jobless rate of 4.2%, a dip from July’s 4.3%. The jobless rate had drawn attention due to its gradual rise and an unexpected increase in July, which sparked concerns that the strong hiring trend in the U.S. economy was slowing down.

Williams remarked that the job market’s current state reflects a deceleration in the labor sector and the economy. He noted that the rise in the jobless rate indicates a return to more sustainable conditions, and it remains historically low. He projected the jobless rate will likely close the year around 4.25% before returning to an average of about 3.75% in the long run.

The job market’s condition has gained more significance for the Fed in an environment where easing inflation pressures could allow rate cuts starting in September. At the end of August, Fed Chair Jerome Powell indicated, “the time has come for policy to adjust,” with the timing and pace of rate cuts dependent on incoming data and the evolving outlook.

Recently, Fed officials have been cautious in providing concrete details regarding the anticipated cuts during the Federal Open Market Committee meeting scheduled for September 17-18. Financial markets expect a cut of either 25 or 50 basis points from the current 5.25% to 5.5% federal funds rate target, with further reductions likely to follow.

Several Fed officials have suggested a gradual easing approach but remained vague on individual meeting outcomes. “I think a slow, methodical approach down is the right way to go,” Philadelphia Fed President Patrick Harker told Reuters on August 22.

Williams also indicated in his speech that decreasing inflation pressures are expected to lead inflation to ease to 2.25% this year and just above 2% next year.

Lastly, Williams mentioned that the Fed’s current quantitative tightening—reducing its holdings of Treasury and mortgage bonds—has minimal influence on the economy as markets have largely factored this process into their pricing.