MNI BRIEF: Fed Right To Stay Modestly Restrictive - Williams

The Federal Reserve's modestly restrictive stance of monetary policy is the right stance for an economy marked by strong employment and above target inflation, New York Fed President John Williams said Friday. 

"The current modestly restrictive stance of monetary policy is entirely appropriate given the solid labor market and inflation still above our 2% goal," he said in prepared remarks. 

He thinks tariffs will both boost inflation and create a drag for economic growth. "I expect increased tariffs to boost inflation this year to somewhere between 3.5 and 4%," said Williams. 

"Given the combination of the slowdown in labor force growth due to reduced immigration and the combined effects of uncertainty and tariffs, I now expect real GDP growth will slow considerably from last year’s pace, likely to somewhat below 1%. With this downshift in the pace of growth, I expect the unemployment rate to rise from its current level of 4.2% to between 4.5 and 5% over the next year." (See: MNI INTERVIEW: Tariffs Put Fed In Stagflationary Bind - Ex-CEA)

Williams said he is monitoring inflation expectations given the rise in short-term views given new trade and immigration restrictions, but takes comfort that longer-run expectations are still in check.

"Monetary policy is in the right place to manage those risks as best we can. Despite the recent rise in short-term inflation expectations, longer-term expectations have remained well anchored," he said. "Elevated uncertainty poses many questions about the future of the economy and the path of monetary policy. It is simply too early to know the answers."