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A short time ago, the Federal Reserve Bank of New York President John Williams said, keeping inflation expectations anchored near policymakers target forms the bedrock of central bank policy. Warm Welcome to all of our TV viewers, but also to our radio listeners. We're here in Rankivik, and I'm delighted to be joined by President Williams. Thank you for joining us. There's a dual mandate the Fed. We all heard also
J Powell on the FMC not cutting rates. You're putting firmly the focus on inflation.
Why now, Well, first.
Of all, we do have a dual mandate of maximum employment and price stability, and these are both very important. But one thing we've learned from history is that having well anchored inflation expectations, having the public have confidence that, regardless of whatever is happening today, that inflation will come back to two percent and that will make sure that happens is very important for price stability and also.
For economic stability.
It helps actually there, it actually helps reinforce our ability to achieve both of our goals. And you know, given to the uncertainty, given the experience of the past five years. You know, it's been very important to keep inflation expectations anchored. That has been successful. It's really important to keep them that way in the future.
Given the uncertainty on terifs and trades, how difficult is it to even have a projection for inflation in the future.
Well, right now there's a lot of uncertainty about what's happening.
With trade policy or other policies.
So for me, what's important is think through a lot of different scenarios. Right now, the economy is in a really good place in the US, unemployments and four point two percent, inflation's two point three percent. The other indicators show we're still pray solid economy. So right now we have time. You know, we're in a good place. Now,
policy is in a good place. Let's collect more data information about what's happening with trade policy, what's its likely effects on the economy, And then once we have that more information, we can kind of think of do we you know, what's that mean for the achievement of our goals in our policy.
I know you don't like when people say, look, the FED seems unwilling actually because of inflation to act preemptively to bolster the labor market. So how do you explain this contrasting in the future.
Well, right now, again the labor market has proven to be resilient. It's strong even through the data through April. So what we you know, what we want to do is really get an idea of what the tariffs are
going to be. Other policy decisions are run these through different scenarios, through our models and our analysis, listen to what business and other leaders are telling us what they're actually doing in response to these policies, and then come to a view of what's happening to employment, inflation, and importantly the risks to that outlook. So you know, once we have that better information, we can assess the situation
and make decisions. So it's it's about getting the information so we understand the direction of travel for the economy and make the best decision possible. We don't but right now, you know, things are still quite in a good place.
If you know there's a sharp downturn actually an unemployment, but you're still worried about inflation, does it mean that fin cuts will have to be quite aggressive quite quickly?
You know, it's really hard to speculate and what would you do if this situation happened In that situation, I mean, where we're in a situation which we could be in where inflation is higher and unemployment is higher. We need to balance the achievement of both of those goals. We need to take actions that we think will bring the economy back to two percent inflation and achieve maximum employment as well as we can while anchoring inflation expectations.
So it really it really.
Depends on what happens, how do the data change, and also kind of how long the inflationary effects, say of tariffs, seem to be lasting. Right now, we can theorize what may or may not happen. Once we have more information, we see how that's going through the economy, then we can make more informed decisions.
And I know it's difficult.
Then we don't want to speculate, but the market is speculating what the market is expecting. You know, at the margin one cont this year, are they more or less right?
Well, I don't like to say the market's right or wrong. I think the market participants are doing exactly what we're doing.
They're analyzing the looking at.
The data, they're looking at the announcements they're analyzing that. One of the things you definitely see in the market pricing in the US is kind of the modal kind of forecast for interest rates is a relatively gradual decline of interest rates reflecting the economy doing reasonably well. But they also market participants are thinking about what happens if the economy weakens more, and that would call for more rate cuts in that environment.
So they are having to think through that.
They have to kind of guess what may or may not happen and make those decisions. But right now, you know, we're just it can be focused on what we're doing today and really think through all the different scenarios so that we're ready as we get more data to kind of know what to how to interpret the data and eventually what do we need, what we may need to do.
And it is scenarios, it's not like two three data points. It's actually trying to understand the picture because I guess it's what the outcomes could be.
So one right, and again with a focus on unemployment and inflation, but with terriffs as a Pacific example, it really depends on which countries, which goods, It depends on you know, a lot of different factors. There is no one rule that says a tariff of X causes inflation of why so luckily in the you know, the fad and of course elsewhere, we have a lot of experts who have studied this for decades. They've looked at past
episodes and done a lot of careful analysis. But one of the things you learn from that is the answer you get depends on how good the information you have.
So we're going to have to see obviously.
The you know, the trade policies are very much still in flux.
That's changing.
We're going to keep watching that those developments, and along with everything else is happening in the global economy.
It's not just about trade policy. And then, you know, you know.
Take it from there, how's the US consumer doing well?
It's interesting the US consumer never lets us down. I mean, really, there's all a lot of predictions of weakness back in twenty twenty two when we were raising rates quickly, that the consumer would finally balk and slow down, and they continue to be. Consumer spending continue to be good, and clearly again this is kind of the line between the hard data and the soft data. The actual consumer spending
has held up pretty well. But we are hearing more reports from businesses and others that you know, consumers are starting to pair back some of that discretionary spending. We do think that consumers did load up on some you know, important goods earlier in the year because before tariffs hit, we know businesses did, that's for sure, So there was a bit of that behavior. So people are definitely again
I think consumer has been pretty healthy. Has also been kind of preparing for what happens of tariffs come in.
President Williams. I mean you've done such, you know, really significant work and research on neutral rates. Is how important is it actually in all this uncertainty to have that in mind?
Well, I would say it's to me again, I've spent a lot of my life setting this, so I'm going to say it's important. It's important as a way of thinking about what's a normal interest rate. When we think about where our interest rate is today, you want to compare.
It to something that's normal.
So I think having this idea of a long run neutral interest rate is an important thing to kind of have in mind. But in terms of my meeting to meeting thinking about what's the right setting of interest rates, that's.
Not what we're thinking about earlier.
So I'm thinking about it's you know, what you're thinking about then is what's happening with employment, inflation and the risks to achieve in our goals. So it's something I think is conceptually important to have in the back of your mind, but it's not the thing today and what you need to do at a on a given day.
I mean, does it not give you that you know, the more immediate term, a good benchmark and you know, compared to what interest rates are, does it fluctuate too much?
Yeah, you know, it's uncertain.
My estimates from our model that I've worked on have actually been relatively constant over the last year and a half at around three quarters or a percent for a real interest rate, a short made real interest rate, So it doesn't seem to refluctuating a lot now, but there's some.
Uncertainty about it.
So yes, when you know, you ask me, do I think of is monetary policy restrictive?
I think of that in different ways.
I do think it's mostly restrictive now, mainly because I'm looking at how the economy.
Is before me, but also in the back of my mind is some notion of you.
Know, real interest rates are are above kind of typical estimates of the long run estimates of the new chrient.
Even if President Trump doesn't do you know, he has a lot of thoughts on monetary policy he was again talking about last night. Even if he doesn't do anything with the chair, removes him or anything like that, does it make the job of Japal's successful a lot harder to make sure that there's central banking dependence is intact.
Well, I do think central banking independence is very important. I think it's important because if history shows, it leads to better outcomes, lower inflation, more stable inflation. We've seen that around the world in central banks in many many countries that have independent most countries have independent central banks. For me, you know, I've been in the FED for over thirty years. You know, I come to work every day.
Just focus on our mission maximum employment, price stability, work with people who are choosing to work at the federalis or bring all of their knowledge and experience to help us do that along with our other responsibilities. So we're non partison, we're not political, you know, we just do our job as well as we can. And you know, kind of what's happening outside in the political world.
Is it's not what I'm thinking about.
Do you feel internal pressure or again not so much, doesn't actually impact? Does the Central Bank have to try harder to make sure that everybody understands that you're independent or again does.
It not factor?
No?
I think you know, it's the same as again throughout my career, it's like, we're not partisan, we're not politically you know, I'm not even you know, we're not even nominated by a political figure through the Federal Reserve Bank president process.
So you really feel like this is.
How we've always operated, you know, getting through many different administrations who through my career, and that has served us very well. And that's what I think the American people quite honestly expect from us. Like we're pretty technocratic and to be honest, very nerdy, very focused on the data, the analysis and doing our best for the American people, regardless of you know, outside commentary or politics.
Do you think you as citizens understand what what the Central Bank does? Does there need to be more outreach, you know, to make sure that they grasp these subjects well?
I think, you know, one of the things I'll just be real about actually is you know, people have lives, they've got family, and they've got maybybe people that are taken care of. They've got jobs, they've got a lot of responsibilities. You know, I wouldn't expect people to spend a lot of time thinking about the FOMC meeting and the statements and the minutes from the meeting.
I would hope that if.
We do our job really well, we're taking the concerns about inflation of the future, concerns about is the FED going to be there to do their job off the table, so that people, whether your families or businesses, can focus on the things that's really important for them to get right in their lives, and that our job is to make them not have to worry as much about economic
and price price instabilities. And so I feel like, in a way a sign of success is that people are not, you know, kind of so focused in their everyday lives about what we're doing.
But we just have to, you know, that.
Commitment just has to show through in our actions and hopefully the outcomes that we're able to achieve.
In President John Williams, thank you so much for joining us. So that's it from right here in Iceland. Where we had a central bank for