Fed Policy Still Restrictive Despite Recent Rate Cut
Federal Reserve Bank of New York President John C. Williams reaffirmed the central bank’s cautious approach toward monetary easing during a recent CNBC interview, just days after the Federal Open Market Committee (FOMC) announced a quarter-point rate cut. The Fed’s decision brought the overnight target range down to between 4.25% and 4.5%, matching market expectations. Yet Williams emphasized that despite this adjustment, U.S. monetary policy remains restrictive.
“We’re pretty restrictive,” Williams said, noting that the current stance continues to apply downward pressure on economic momentum, which is intended to further ease inflationary pressures. He maintained that the central bank is still committed to reaching its long-term inflation target of 2%, though the pace may now be slower than previously hoped.
“Data-Dependent” Trajectory Toward Neutral
Looking ahead, Williams said the Fed is broadly on track for additional interest rate reductions, but with a clear caveat: all decisions will remain tightly tied to incoming economic data. “The baseline trajectory is moving down towards neutral rates,” he said, referring to a point where monetary policy neither stimulates nor restrains economic growth.
Williams underscored the Fed’s “data-dependent” philosophy, noting, “We have time to really assess the data, assess what’s happening, and come to the best judgments based on the data, the outlook and the risks to achieve our goals.” This measured, deliberate pace of adjustment allows the central bank to remain flexible in the face of ongoing uncertainty.
Trump’s Economic Agenda Adds to Inflation Concerns
While economic indicators like inflation and labor market strength remain key determinants for Fed policy, Williams acknowledged that political developments are beginning to shape the outlook more tangibly. The impending administration of President-elect Donald Trump has sparked fresh concerns over inflation, particularly in light of his support for tariffs and stricter immigration controls.
“Some of what Trump wants on the immigration front may already be happening,” Williams admitted. He also indicated that fiscal and immigration policy considerations are being factored into his personal economic forecasts. “Those are important drivers to thinking about the economic outlook,” he said. However, he also stressed the high degree of uncertainty surrounding how exactly these policies will unfold and affect the economy.
Inflation Persists Despite Efforts
The persistence of inflation was confirmed by the most recent data from November. The Personal Consumption Expenditures (PCE) price index—one of the Fed’s preferred inflation gauges—rose 2.4% year over year, slightly above the 2.3% rate in October. The core PCE index, which excludes volatile food and energy prices, held steady at 2.8%.
Although the Fed has begun the process of easing, it remains wary of loosening too quickly. Central bank officials, including Fed Chair Jerome Powell, have reiterated that the pace of inflation’s return to the 2% target will be gradual and dependent entirely on observed trends—not assumptions about policy shifts from the incoming administration.
As Williams concluded, while the Fed is in “a great place” to respond to evolving conditions, navigating the months ahead will require flexibility, vigilance, and a steady hand on the monetary policy tiller.