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Good morning, and we'd like to welcome all of our viewers and listeners on Bloomberg Television and radio worldwide. I'm here at the New York FED with the president of this regional bank, John Williams. Thank you very much for joining us this morning.
Well, welcome to the New York FED.
We have so much news and headlines about Iran today and it does affect people's economic lives a lot. I know you can't make a forecast, but what's the best estimate that your people have been able to come up with now for what this is going to do to inflation and how quickly.
Well, I think it will directly go into headline inflation because energy prices are important component of that. So I expect headline inflation to actually be elevated, you know, in the middle of this year, of course, if energy prices come back down or stabilize, and that won't add more
to inflation right now. Now, my view on inflation is we're looking at inflation rate for the year as a whole of something like two and three quarters percent, But of course it depends what happens with energy prices.
What could we get to in the meantime, what's the sort of thinking about where inflation on a numerical basis could end up.
Well, again, it's hard to predict avous estimate. Clearly we can get into above three percent inflation. I think markets expectations right now or for CPI to be something like three and a quarter percent over the next year, But it really depends on what happens, both in terms of how hig I do energy prices get, but also how long they stay high or whether they come back down. Personally, I'm also very focused on what's happening with underlying inflation,
core inflation, inflation expectations and other indicators as well. Besides what's happening to energy prices. Underseeing the broader.
Picture, well, what's happening with core inflation.
Yeah, so there, I think the story hasn't changed very much. Clearly, higher energy prices add a little bit to core inflation. You think about airfares, which is part of core inflation, but it is influenced by fuel prices. So I expect that to add maybe a ten or two to core inflation over the year, the energy price component. But we've seen teriff 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 two and a half percent this year.
Well, how long how fast would inflation have to move to merit a rate response.
Well, I think really it does go back to kind of the full kind of 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 I am watching you know, important good prices, looking at core inflation, inflation expectations, and then obviously on top of that, what's happening to food, food,
and energy. So to my mind, Monte policy today is really well positioned, given where all of those dynamics have been playing out, and well positioned to kind of wait and see on some of the effects of you know, what's happening today. This isn't I'm not saying we're just you know, in some kind of we can't act. I think this Mantrea policy is exactly where it needs to be,
and then we can respond if the situation changes. Right now, I think that Mantre policy though, is pretty well positioned, you know, given what we've been seeing.
So far, Monetary policy is well positioned. But what about the economy. What's the state of the economy.
Well, you know, if you asked me this a month or two ago, we would be talking about remarkable resilience of the economy, growing at two percent last year, looking to grow even faster this year. Clearly with the conflict in the Middle East, that changes out a bit. I'm so, I'm you know, consumers are families or are going to be paying higher fuel cost gas price with the gas price increases, So I've been bringing down my forecast for growth this year, probably somewhere between two and two and
a half percent for growth this year. An unemployment rate probably staying around where it is now four point three percent. And you know economy that's you know, continuing to grow but roughly roughly at trend, a gatting driven by consumer spending and investments, especially in AI.
Well, you mentioned unemployment, new cut rates. In the last year, we were told basically to prop up the labor market. What is the state of the labor market. Is that accomplished?
Well, it's hard, it's hard to read all the tea leases, because it's a pretty complicated situation with the labor market. We are seeing some you know, various kind of different signals. If you look at my view is if you look at the unemployment rate, it's today at four point three percent, It's about where it was in July. So we've seen some you know, stability there in terms of the unemployment rate and in job openings and some of the other indicators.
So I feel like we've gotten the labor market. We've seen the labor market more much more stable now. Definitely not a labor market that's weakening based on the economic indicators. That said, if you look at the ser including the survey that we do in the Conference Board survey, that's not how people are, you know, kind of feeling about
the labor market. Definitely, we've seen a continued 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, higher low fire labor market. And maybe the kind of the views aren't not as strong as you would think just looking at the aggregate and payroll and unemployment data.
You're well positioned to do whatever you need to do to help the economy. But can monetary policy really do a lot in these situations? What's the lag Ja Powel was talking about. It could be a year from now before it hits the economy. Whatever you did.
Absolutely so, monetary policy, based on all the kind of historical evidence, takes about a year to have its full effect on the economy and even longer on inflation. So we always have to be forward looking. We have to be thinking about where's the economy going to be rather than where it is today or where it's been in the past. So that means trying to, you know, think through where is inflation going to be, you know, later this year and next year. Where's the economy going to
be now? I do you know, I go back to kind of the analysis we've done. I do expect underlying inflation eventually later this year to start coming back down because the effects of the tariffs on inflation will start to wane. I do expect, you know, the continuation of the kind of good positive movement and underlying inflation. But we'll have to watch is that does that continue? And again what happens in terms of the conflict and its effects on inflation.
We're worried about the Iran war. We're worried about tariffs, people are worried about AI, and you mentioned the consumer sentiment numbers, But the economy has been fairly real resilient.
Why well, I think I think Americas has the best productivity, highest productivity in the world, has got the highest among the highest productivity growth. We are remarkably resilient, evative, dynamic economy. And I think technical new technology is making a big difference, not just AI, but more broadly. We've seen proactivity growth that's actually been above par for the past six years.
So I think there's there are some fundamentals that are driving you know, solid gains in productivity, in real incomes and you know demand for uh, you know, demand to hire people. But there's you know, there's these various cross currency you mentioned. So again last year, the story with the surprise was the economy was so resilient despite the uncertainty, despite other factors like the tariffs. This year it's you know, well,
it's another test of that resilience. But investment in AI and data centers is I think will continue to be strong this year and for you know, as long as the economy continues to growth and consumer spending will continue to be a very.
Positive Well along those lines, what's your read on average hourly earnings or wages or whatever measure you want to dot, whose average hourly earnings came down to three and a half percent, what's a sweet spot? What's a level at which it won't be a concern.
Yeah, I think we're at that level. If you look at all the different indicators, and now we have some very good real time indicators we have, you know, the standard official statistics, I think pretty much all of them
are telling us that compensation is continue to grow. Really, compensation is growing, and it's growing in a way that's consistent with productivity growth we're seeing, so to my mind, the labor market, and you know, whether you look at the unemployment rate or and you look at wage growth, these are not factors pushing up inflation at all. So I feel like we're at a good place for that, and I think that's consistent with what we're seeing the labor market.
Then you've been traveling around the State of New York lately, what are you hearing from CEOs? For a long time, the story has been we're just sitting there because we don't know what's going to happen.
I think that story changed a bit. You know, when you think about how do you respond to uncertainty, the first thing you probably do is you, you know, pause any longer term plans around hiring, an investment, and try to figure out, you know, what to do. I think a lot of CEOs have said, well, we're past at so now we just have to navigate a world with higher uncertainty. Make the decisions that makes sense, make the investments that make sense. And you see you hear about
that a lot with AI and investments in AI. So I think we're kind of in the second stage you will respond to uncertainty is really about well, okay, we need to make decisions. Let's let's move forward. And I think that's consistent with what we're seeing. You know, we're seeing positive job growth, We're seeing an economy that continues to grow and invest.
Well, are people telling it at all about cutting back?
Well, it's interesting on that. I mean, going to the AI specific question, I think most of the conversation the CEOs most of them are talking about is really about making smart decisions, hiring people with AI skills, hiring in areas that you know, maybe jobs we don't need because we could use AI. So there's a lot of I think thought going into that, but not in terms of, you know, what we need to cut back our labor force. You know, of course you see this with the data too.
We're not seeing high levels at all of initial claims for unemployment or layoffs. So I think it's a low higher, low fire and low unemployment economy. It's it's unusual mix, but it's uh, that's I think that's what we're still seeing even today.
The next FOMC meeting at the end of the month is j Powle's last as chair. Maybe what's your understanding is the vice chair of the Open Market Committee about what happens if Kevin Warsh is not confirmed by then.
Well Chair Powell already spoke to that recently. In terms of the Board of Governors, I'll speak to the FMC, the Federal oper Market Committee. I mean every January we have a vote about you know, selecting a chair and a vice chair, and that's that vote is in place for throughout the year. So there's no issue of continuity, there's no issue of anything. You know, we're you know,
that's all in place. Typically we have this vote in January for the chair of the f MC, and or if a new chair is confirmed by the Senate, then that person becomes the chair of the f MC. But I would just highlight the most important thing here is that, you know, we're just focused on doing our work. There's no issue about continuity or things like that of the
f MC. We're just you know, doing what we always do, which is digging into all the data, you know, trying to do our very best rechieve maximum employment and priceability goals.
So basically, if Worsh is not confirmed, you don't have to do anything. You just.
Continue on exactly at the FMC. Just continue on.
Now, Kevin has come out and said that there's a lot of things he would like to change, and we will go down the whole laundry list. But how effective do you think with this FOMC, with the board can he be in affecting change in the short run? Are we looking at some sort of massive change in the way things are done or is this going to be a process that takes place over years.
At first, you know, Kevin Aworsh understands the Federal Reserve very well. He was a governor. I knew him then I think as a keen understanding of what our mission
is and the importance of what we do. You know, I can't speak for him, and I haven't spoken to him lately, but I do expect that when he when he does get confirmed by the Senate, that he will share his views and perspectives as he thinks about, you know, what he wants to accomplish as chair And you know, I've worked now with four different shares and many governors and very many presidents, and the most you know, I think the most common element of all this is when
people come into the Federal Reserve, they understand the importance of the work we do, the importance of the mission to the American people. And that's that's exactly what I expect when Kevin worship rejoins, if you will, the Federal Reserve.
Now, one of the open questions is what happens to Chairman Powell when he's no longer Chairman but still a governor. Would you like to see him stay on?
Well, that's a decision for Chair Powell, and I don't have any comment on that. I leave that to him.
Well, we'd like to thank you very much for talking with us this morning. John Williams, the President of the New York Fed and Vice chair of the Open Market Committee, who will send it back to you.