The "Three Heads" of the Federal Reserve: Soft landing of the US economy can be expected, supporting a 25 basis point rate cut

New York Fed President Williams said the Fed is now in a "good position" and can achieve a soft landing for the U.S. economy, hinting at slowing down the pace of rate cuts after a significant 50 basis point cut in September.

Williams stated that the job report in September was "very good," confirming that despite inflation slowing down after more than a year of high rates, the U.S. economy remains strong and healthy.

"The current monetary policy stance is very appropriate and is expected to continue to support a strong economy and labor market, while also continuing to push inflation back to 2%," Williams told the Financial Times on Monday.

Employment data helps change people's expectations for the world's largest economy, which has been a concern, fearing that the Fed's actions to eradicate the most serious inflation in decades by raising borrowing costs could trigger an economic downturn.

The September non-farm payroll report also dispelled market bets that the Fed would cut rates by another 50 basis points at the November meeting, after the Fed decided to start its first easing cycle in over four years by cutting rates by 50 basis points to 4.75-5%. Williams, a permanent voting member of the Federal Open Market Committee (FOMC) and a close ally of Fed Chairman Powell, said the rate decision in September was "right" and "right" in the current situation, as there is evidence that inflation is slowing down and some heat in the labor market has dissipated.

"As the chairman said, it makes sense to readjust policy to remain restrictive and continue to put downward pressure on inflation, but the degree of adjustment should be significantly reduced," he said. "I don't want to see the economy weaken. I want to maintain the strength we see in the economy and labor market."

When asked how the Fed should actively continue to cut rates, Williams said officials' latest rate forecast "dot plot" suggests two more 25 basis point rate cuts at the remaining two meetings this year, which is a " very good baseline scenario".

He said the final decision will depend on data, not following a "preset path," which is consistent with Powell's wording.

The 50 basis point rate cut in September is not "a guideline for our future actions," Williams added.

Williams said his goal is to adjust rates to a "neutral" level, no longer suppressing demand in the long term, although he admits there may be a lack of precision in estimating where rates will ultimately end up.

He said if inflation falls faster than expected, "this will require policy to normalize faster." Conversely, if inflation stagnates, "this will require rates to fall more slowly."

Williams expects the Personal Consumption Expenditures Price Index (PCE) to approach the Fed's 2% target next year, but he remains cautious about shocks from regions like the Middle East.

"This is definitely a risk on my list of global economic and recent inflation risks," he said, referring to the recent rise in oil prices Williams is not concerned about inflation related to housing, as this type of inflation is more stubborn than expected, which will keep the overall monthly indicators at a high level. However, "leading indicators are gradually approaching our target," he said