Fed's John Williams says central bank isn't “really talking about cutting rates” right now

Fed's John Williams says central bank isn't “really talking about cutting rates” right now

New York Federal Reserve President John Williams said Friday’s interest rate cuts are not a topic of discussion for the central bank at this time.

“We’re not really talking about rate cuts right now,” he said on CNBC’s “Squawk Box.” “We are very focused on the question before us, which, as Chairman Powell said, is: Have we put monetary policy on a sufficiently tight path to ensure that inflation gets back to 2%? That is the question before us.”

The Dow Jones Industrial Average rose to a record high and the 10-year Treasury yield fell below 4.3% this week as traders took the Fed’s Wednesday forecast for three rate cuts next year as a sign that the central bank was changing its tough stance and start cutting interest rates next year would mean interest rates come sooner than expected.

Traders are betting the central bank would cut interest rates more than three times, according to Fed Funds Futures. The futures markets also suggest that the Fed could start cutting interest rates as early as March.

It appears that Williams is curbing some of that enthusiasm a bit.

“I just think it’s premature to even think about it,” Williams said when asked about forward pricing for a March rate cut.

Williams said the Fed will continue to rely on data and that it is prepared to tighten monetary policy again if the trend of weakening inflation reverses.

“It looks like we are close to it in terms of sufficient restriction, but things can change,” Williams said. “One thing we have learned over the past year is that the data can change and, in surprising ways, we need to be prepared to tighten policy further should inflation progress stall or reverse.”

The Fed forecast that its preferred measure of inflation – the core personal consumption expenditure price index – will fall to 2.4% in 2024 and fall further to 2.2% in 2025, eventually reaching its 2% target in 2026. In October, the indicator increased by 3.5% year-on-year.

“We are definitely seeing inflation slowing. Monetary policy is working as intended,” Williams said. “We just need to make sure that … inflation gets back to 2% on a sustained basis.”

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