Federal Reserve's Williams: Inflation is cooling down, interest rates will decline further

According to the Zhitong Finance APP, New York Federal Reserve President John Williams recently stated in an interview that he believes inflation is cooling down and interest rates will decline further. He further pointed out that "a 2% interest rate best balances the Federal Reserve's employment and price stability goals."

Regarding the economic situation in the United States, Williams stated that the U.S. economy is growing very well, and there are no signs of recession in the data. He mentioned that the U.S. labor market is currently in a balanced state, which is not putting upward pressure on inflation. He expressed hope to see the inflation rate drop to 2% and maintain that level in a stable labor market. However, he also added that he is prepared to address the risk of inflation being higher than expected next year.

Williams noted that the current monetary policy is clearly restrictive, which is why it was "very appropriate" for the Federal Reserve to cut interest rates in the last two meetings. He stated that it is appropriate to further lower interest rates to a more normal or neutral level over time.

Additionally, when asked about the impact of a potential second term for Trump on the independence of the Federal Reserve, Williams said, "I cannot predict what people will argue about, but the independence of our monetary policy is important, and you wouldn't be surprised by that. Based on evidence from around the world, we have seen that central banks that can make monetary policy decisions without political or other influences—just based on data, analysis, evidence, and achieving target goals—perform better, especially in achieving low and stable inflation." "Independence is good for central banks, not just in the U.S., but around the world."

Multiple Federal Reserve Officials Speak

It is worth mentioning that several Federal Reserve officials spoke on Wednesday. Federal Reserve Governor Michelle Bowman stated that the Federal Reserve should take a more cautious approach to monetary policy, as current interest rate levels may be close to neutral policy, but there is still a risk of rates falling below neutral before achieving price stability goals. She pointed out that inflation remains a key focus, and progress in reducing inflation seems to have stalled, with expectations for neutral rates now higher than pre-pandemic levels.

Bowman emphasized that the task of price stability faces greater risks, even though the labor market may experience some deterioration, the overall economy remains strong, the labor market is close to full employment, and inflation remains persistently high. Regarding monetary policy, Bowman stated that the Federal Reserve is readjusting its policy but has not yet reached its goal of reducing inflation. She called for policymakers to remain flexible to respond to economic changes and potential risks.

Federal Reserve Governor Lisa Cook stated that overall data indicate that the decline in inflation is still ongoing, and the labor market is gradually cooling down. If progress in reducing inflation slows while the job market remains robust, there may be a pause in interest rate hikes. Cook stated, "I still believe the direction of the policy interest rate path is downward, but the magnitude and timing of rate cuts will depend on the latest data, evolving outlooks, and the balance of risks. I do not believe the policy is on a preset track, and I am ready to respond to changes in the outlook."

Meanwhile, Boston Federal Reserve President Susan Collins emphasized in her speech that although the overall economic situation is good and inflation is expected to return to the Federal Reserve's 2% target, further rate cuts are still needed, and policymakers must remain cautious to avoid acting too quickly or too slowly. She pointed out that while the final outcome remains uncertain, the current policy is still restrictive, and the Federal Open Market Committee is prepared to address inflation and employment risks Interest rates will not follow a predetermined path. Collins also stated that a further slowdown in economic hiring is undesirable, and a rate cut in December is still possible, but the specific decision will depend on subsequent data