John C Williams: Finding balance in the economy
Remarks by Mr John C Williams, President and Chief Executive Officer of the Federal
Reserve Bank of New York, at the Economic Club of New York, New York City, 30 May
2024.
* * *
As prepared for delivery
Introduction
I'm honored to be here today among so many Economic Club of New York members,
fellows, students, and staff. The Club has the privilege of hosting incredible speakers,
but it's our members who truly create the robust, dynamic environment for our
discussions. Thank you for being part of this wonderful organization.
As I look ahead to the end of my term as Club chair, I'd like to thank my predecessor in
this role, Marie-Josée Kravis; our board members; our tireless President and CEO,
Barbara Van Allen; and the small yet remarkably productive staff of the Club. When I
began my term as chair back in June of 2020, the ECNY was strong and vibrant, all
thanks to their vision, commitment, and hard work.
At the same time, 2020 was a period of tremendous uncertainty for the ECNY. After all,
our hallmark was in-person events. With the onset of the pandemic, we needed to
reinvent what it meant to be the ECNY in very short order. We all quickly came together
and innovated to an incredible degree so that we could reach our members in new
ways. Zoom became our meeting room, and we later found success in hybrid events.
We launched new programs, including a series focused on Diversity, Equity, and
Inclusion, the Innovation and Social Impact Challenge, and the podcast. And we did it
while maintaining the financial strength of the Club.
Here is one statistic that captures the dramatic evolution of the Club. Over the past four
years, we held 100 events, or 25 per year, on average. That compares to 660 events in
the prior 113 years, or about six per year. That's over a 300 percent increase in
productivity! There are many exciting things planned for the future, and I look forward to
watching the Club evolve and prosper in the years to come.
For today's discussion, I'll transition away from my role as ECNY chair and back to my
job as president of the New York Fed. I'll spend some time focusing on how the Federal
Reserve is working to achieve both maximum employment and price stability. I'll also
discuss the progress we've seen in the economy in terms of getting supply and demand
in better balance and bringing inflation back down to the Federal Open Market
Committee's (FOMC's) 2 percent longer-run goal. Finally, I'll share my view on where
the economy is headed.
Now I need to provide the standard Fed disclaimer that the views I express today are
mine alone and do not necessarily reflect those of the FOMC or others in the Federal
Reserve System.
The Dual Mandate
As I never tire in saying, the Federal Reserve's monetary policy goals are clear:
maximum employment and price stability. The overarching objective of monetary policy
today is to bring inflation down to 2 percent over time while maintaining a strong labor
market.
Economic Progress
The good news is that over the past two years, we have made considerable progress
toward these objectives. After last year's strong GDP and job growth, incoming data
point to a slowing, but still solid pace of growth in economic activity in the first half of
this year. Demand-supply imbalances have diminished. Global supply chains, which
were severely disrupted during the pandemic and early in the recovery, have mostly
returned to normal. At the same time, inflation has come down considerably.
Let me dive deeper into the maximum employment side of our mandate. First and
foremost, the labor market remains quite strong. Labor supply has been boosted by
high levels of labor force participation among individuals aged 25-54 years, as well as
by increased immigration flows. The unemployment rate has been under 4 percent for
more than two years-the longest such stretch in over 50 years. This measure-now at
3.9 percent-is close to my estimate for the unemployment rate that is likely to prevail
over the longer run.
Even as the economy and labor market remain strong, various labor market indicators
show that demand-supply imbalances that emerged following the pandemic continue to
recede. Most of these measures have returned to pre-pandemic levels. But two are still
signaling a tighter labor market than before the pandemic: job vacancies and wage
growth. After skyrocketing over the course of 2021 and early 2022, the rate of job
openings has subsequently steadily declined, but still remains elevated relative to
prepandemic levels. Wage growth has displayed a similar pattern, including for so-called
1
job switchers for whom wage growth is highly sensitive to labor market conditions.
That said, wage growth has yet to fully return to levels consistent with 2 percent price
inflation on a sustained basis.
That provides a nice segue to the topic of inflation, the other half of our mandate.
Inflation has declined significantly since mid-2022. This drop has been broad-based,
with inflation lower in all major categories-food, energy, goods, and services. The
12month percent change in the personal consumption expenditures (PCE) price index has
continued to decline, falling from its 40-year high of above 7 percent in mid-2022 to 2.7
percent in the latest reading. The decline in inflation has benefited from a reduction in
demand and supply imbalances, both here in the U.S. and internationally.
Indeed, this phenomenon is not unique to the United States. Canada, the United
Kingdom, and the European economies experienced historically high inflation and have
similarly seen relatively rapid declines in inflation as well. In fact, based on the
Harmonized Index of Consumer Prices, the inflation rates in the euro area, Sweden, the
United Kingdom, and the United States are all now nearly the same. While every region
has its own set of conditions, global factors affected inflation in advanced economies
around the world.2
Even with this good news, inflation in the United States remains too high, and in recent
months there has been a lack of further progress toward our 2 percent goal. Extracting
the signal from the noise when it comes to inflation readings is especially challenging
now, since the economy is still feeling the aftershocks of the supply chain issues and
high inflation following the pandemic and the war in Ukraine.
I'll point to a few areas of research developed by my colleagues at the New York Fed to
better understand the data. The most recent reading of our Multivariate Core Trend
(MCT) inflation measure was 2.6 percent in March, about the same level as it was in
3
December, and down nearly 3 percentage points from its peak in June 2022.
Furthermore, measures of inflation expectations from our Survey of Consumer
Expectations have remained broadly stable and are generally in line with their
4
preCovid ranges at all horizons. And global supply chain issues have mostly receded,
according to both our Global Supply Chain Pressure Index and evidence from our
5 6
regional surveys of businesses. ,
Overall, I see some of the recent inflation readings as representing mostly a reversal of
the unusually low readings of the second half of last year, rather than a break in the
overall downward direction of inflation. With the economy coming into better balance
over time and the disinflation taking place in other economies reducing global
inflationary pressures, I expect inflation to resume moderating in the second half of this
year. But let me be clear: inflation is still above our 2 percent longer-run target, and I am
very focused on ensuring we achieve both of our dual mandate goals.
Economic Outlook and Monetary Policy
So, what does this mean for monetary policy?
It's important to note that many factors beyond monetary policy influence the economy
and financial markets. These include global drivers of supply and demand, as well as
factors that are currently affecting the supply side of the U.S. economy that are driving
up GDP and job growth. Therefore, the stance of monetary policy needs to be
considered in this broader context, and cannot be understood simply by looking at the
growth rate of the economy, or comparing the interest rate to its longer-run level or
rstar.
Looking at this broader context, the behavior of the economy over the past year
provides ample evidence that monetary policy is restrictive in a way that helps us
achieve our goals. We are seeing clear and consistent signs that the imbalances
between supply and demand in the economy are receding. And we have seen a
broadbased decline in inflation. Overall, the risks to achieving our maximum employment and
price stability goals have moved toward better balance over the past year.
At its May meeting, the FOMC kept the target range for the federal funds rate
unchanged at 5-1/4 to 5-1/2 percent. In announcing that decision, the Committee said it
"does not expect it will be appropriate to reduce the target range until it has gained
greater confidence that inflation is moving sustainably toward 2 percent."7
Additionally, the Committee said it will "continue reducing its holdings of Treasury
securities and agency debt and agency mortgage-backed securities," and beginning in
June, "will slow the pace of decline of its securities holdings." The decision to slow the
pace is in no way indicating an imminent cessation of shrinking the balance sheet.
Rather, by slowing the pace, we're better able to monitor conditions and facilitate a
smooth transition to the appropriate level of ample reserves.
I see the current stance of monetary policy as being well positioned to continue the
progress we've made toward achieving our objectives. In terms of my forecast for the
economy, I expect GDP growth this year to be between 2 and 2-1/2 percent. I expect
the unemployment rate to be about 4 percent at the end of this year, and then move
gradually down to its longer-run level of 3-3/4 percent thereafter. As the growth of
economic activity gradually slows and demand and supply continue to come into better
balance, I expect overall PCE inflation to moderate to about 2-1/2 percent this year,
before moving closer to 2 percent next year.
It goes without saying that the outlook is uncertain. The risks are two-sided, with
geopolitical events and China's growth outlook prominent examples. Because of this,
we will continue to keep an eye on the totality of the data, so that we make policy
decisions that ensure that we get inflation sustainably back to 2 percent while
maintaining a strong labor market.
Conclusion
I'll close with this. We have seen a great deal of progress toward our goals over the
past two years. I am confident that we will restore price stability and set the stage for
sustained economic prosperity. We are committed to getting the job done.
1
For a discussion of the importance of job switchers for aggregate wage dynamics see
Fatih Karahan, Ryan Michaels, Benjamin Pugsley, Ayegül ahin, "Do Job-to-Job
Transitions Drive Wage Fluctuations over the Business Cycle?," American Economic
Review, 107:5 (May 2017): pp. 353-57.
2
Martín Almuzara, Babur Kocaoglu, and Argia Sbordone, "Is the Recent Inflationary
Spike a Global Phenomenon?," Federal Reserve Bank of New York Liberty Street
Economics, May 16, 2024.
3
Federal Reserve Bank of New York, Multivariate Core Trend Inflation (March 2024
update).
4
Federal Reserve Bank of New York, Survey of Consumer Expectations (April 2024
Survey).
5
Federal Reserve Bank of New York, Global Supply Chain Pressure Index (April 2024
update).
Jaison R. Abel and Richard Deitz, "Supply Chain Disruptions Have Eased, But
Remain a Concern," Federal Reserve Bank of New York Liberty Street Economics, May
20, 2024.
7
Board of Governors of the Federal Reserve System, Federal Reserve Issues FOMC
Statement, May 1, 2024.