FED: Williams Keeps Dovish Lean With Underlying Inflation View Roughly Unchanged

Speaking on Bloomberg TV, New York Fed's Williams (permanent voter, leaning dove) repeated that his view of underlying inflation is roughly where's it been for a while, with little sign of impact from the ~$10/bbl increase in WTI prices since he last spoke on Mar 30. He has trimmed his GDP growth forecast to 2-2.5% from close to 2.5% on Mar 30, but he continues to see monetary policy as really well positioned. There was relaitvely little drawn from Friday's strong NFP report, noting that the labor market is in a "pretty complicated" situation with the stabilization in the unemployment rate but ongoing consumer wariness. 

• On how inflation impacts might show up: “I think it'll go directly into headline inflation. I expect that to be actually elevated in the middle of this year. Right now we are looking at inflation rate for the year as a whole of something like 2.75% but it of course depends on what happens with energy prices. [In the interim] Clearly we could get to above 3% inflation, markets expectations right now are for CPI to be something like 3-3.25% over the next year.”
• “Personally I'm also very focused on what's happening with underlying inflation, core inflation, inflation expectations and other indicators as well. The story hasn't changed much. Clearly, higher energy prices does add a little bit to core inflation. You think about air fares, which is part of core inflation but it is influenced by fuel prices. So I expect that to add maybe a 10th or two to core inflation over the year, the energy price component, but we've seen tariff rates come down. We've seen some other, I think, more positive signs on underlying inflation. So overall, I'm kind of where I've been for a while, with core inflation around 2.5% this year.” 

• When asked how long, how high and how fast will inflation have to move to merit a rate response? “I think really it does go back to kind of the full set of factors influencing inflation. And I'm going to bring up tariffs, because it is a big part of the story so far about why core inflation has been elevated. […] So to my mind, monetary policy today is really well positioned, given where all of those dynamics have been playing out, and well positioned to kind of wait in and see on some of the effects of what's happening today."

   

• On the state of the economy: “If you asked me this a month or two ago, we would be talking about remarkable resilience of the economy, growing to 2% last year, looking to grow even faster this year. Clearly, with the conflict in the Middle East, that changes that a bit. So I've been bringing down my forecast for growth this year, probably somewhere between 2-2.5% for growth this year, and unemployment rate probably staying around where it is now, 4.3% and in an economy that's continuing to grow, but roughly, roughly at trend, again, driven by consumer spending and investments, especially in AI”.
• On the labor market: It’s a “pretty complicated situation with the labor market. We are seeing various different signals. If you look at the unemployment rate, 4.3% today is where it was in July. So we've seen some stability there and in job openings and some of the other indicators. We've seen the labor market much more stable now, definitely not a labor market weakening based on the economic indicators. That said […] we've seen a continuing process of people being more pessimistic about the labor market, not about a recession or something, but just a view that this is a pretty low hire, low, fire labor market. Maybe the kind of views are not as strong as you would think, just looking at the aggregate payroll and unemployment data, you're well positioned to do whatever you need to do to help the economy.”
• Q on average hourly earnings coming down to 3.5% and what is the level at which it won't be a concern? “If you look at the indicators we have some very good real-time indicators. I think all of them are telling us that compensation is continuing to grow and it's growing in a way that's consistent with the productivity growth we are seeing.” 

• On FOMC continuity if Kevin Warsh is not confirmed: “Every January we have a vote about selecting the Chair and Vice Chair. That vote is in place throughout the year. So there's no issue of continuity. Typically, we have this vote in January for the Chair of the FOMC or if a new Chair is confirmed by Senate then that person becomes the Chair. We are just doing what we always do which is digging into all the data trying to do our very best to achieve our maximum employment and price stability goals.
• On potential changes Kevin Warsh wants to enact? "Kevin Warsh understands the Fed very well and has a keen understanding of what our mission is and of the importance of what we do. I cannot speak for him and I have not spoken to him lately but I do expect when he does get confirmed that he will share his views and perspectives as he thinks about what he wants to accomplish as Chair."