(Bloomberg) -- Federal Reserve Bank of New York President John Williams said policymakers should reduce interest rates toward a more neutral level “over time” now that the risks to achieving both their inflation and employment goals are better balanced.
Williams, in remarks prepared for an event Thursday at Binghamton University, said that he’s confident inflation is headed toward the central bank’s 2% target and lauded a labor market that has cooled in the past year but remains solid. That should give the Fed room to move rates to a level that neither weighs on nor stimulates the economy.
“Looking ahead, 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,” Williams said. “With this progress toward achieving price stability, moving toward a more neutral monetary policy stance will help maintain the strength of the economy and labor market.”
Policymakers lowered their benchmark rate by a half point last month, starting their easing cycle with a larger move meant to preserve the strength of the US labor market. Several officials speaking since the meeting have said they believe the Fed should lower rates gradually following the outsize cut, and minutes of the gathering released Wednesday indicated a robust debate about the size of the reduction.
The New York Fed Chief, a permanent voter on the policy-setting Federal Open Market Committee, cited broad-based disinflation and said a variety of labor-market indicators show that the workforce won’t likely be a source of further price pressures.
Data earlier Thursday showed consumer prices rose by more than forecast in September, representing a pause in the recent progress toward moderating price pressures. However, economists said after the report that the Fed’s preferred inflation gauge — the personal consumption expenditures price index, which has been trending close to its target — will probably post a more tame advance when the data are released later this month.
“There’s still some distance to go to reach our goal of 2%, but we’re definitely moving in the right direction,” Williams said. “The data paint a picture of an economy that has returned to balance.”
A stronger-than-expected September jobs report released last week lowered expectations that the Fed would keep making large moves. After Thursday’s data — which also included a report that showed applications for US unemployment benefits rose last week to the highest in over a year — investors boosted bets that the central bank would cut rates by a quarter point at each of their next two meetings. That’s in line with the median forecast released in Fed officials’ latest summary of economic projections.
Williams told the Financial Times this week that those projections were a good base case for what policymakers could do in the near term. But he said decisions would be based on the data and emphasized that policy is not on a “preset course.”
Speaking earlier Thursday, Chicago Fed President Austan Goolsbee said he wasn’t overly concerned with a higher-than-forecast September inflation report and stuck by his view that the US central bank has moved past its singular focus on price pressures.
“The overall trend over 12 to 18 months is clearly that inflation has come down a lot and the job market has cooled to a level which is around where we think full employment is,” Goolsbee said in an interview on CNBC.
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