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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Good morning everybody, and

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Speaker 1: we'd like to thank John Williams for joining us. I'm

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Speaker 1: Bloomberg Radio and Television Worldwide. John. Numbers just came out

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Speaker 1: pretty amazing.

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Speaker 2: Are you continually surprised by the American consumer?

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Speaker 3: Well, first of all, welcome to the New York FED.

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Speaker 3: We're celebrating to the one hundredth anniversary of this building

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Speaker 3: here at Liberty Street. So yeah, the consumer spanning has

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Speaker 3: been strong. I think it is driven by strong fundamentals.

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Speaker 3: Job growth has been solid, We've seen real wage gains.

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Speaker 3: We're in a pretty strong economy with good growth, So yes,

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Speaker 3: it's part of that story. But you know, I think

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Speaker 3: what we're realizing is we're getting a nice tailwind from

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Speaker 3: the supply side of the economy. Good labor force growth,

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Speaker 3: strong productivity, good real wage gains.

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Speaker 4: So with that, I think, you know, consumers are spending.

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Speaker 2: What's the thinking in your office and among your colleagues

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Speaker 2: about does this last or is this surprise that you

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Speaker 2: think could go a way at any minute.

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Speaker 3: Well, one thing that makes it really hard to forecast

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Speaker 3: is we're still feeling the effects of the after effects

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Speaker 3: of the pandemic and Russia's war in Ukraine and all

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Speaker 3: the things that have happened in between. So we're definitely still

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Speaker 3: seeing an adjustment process by the consumer in.

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Speaker 4: The economy overall. But you know, overall, I think that.

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Speaker 3: The economy will continue to grow at a solid rate

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Speaker 3: this year, probably not as high as the three point

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Speaker 3: one percent we saw last year, but something like two

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Speaker 3: percent or around that.

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Speaker 4: So I feel like.

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Speaker 3: We're still in a good place, probably not as rapid

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Speaker 3: of growth as we saw last year.

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Speaker 2: Speaking of international events, I have to ask you the

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Speaker 2: Middle East going on right now, how do you think

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Speaker 2: about the economic and policy.

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Speaker 1: Implications of these events?

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Speaker 3: Right so, obviously we're watching this very carefully. I think

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Speaker 3: the primary way you see it through now is first

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Speaker 3: of all, through commodity prices, But second is you know

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Speaker 3: what we think of as a flight to safety.

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Speaker 4: We're investors.

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Speaker 3: When they see risks in the global economy, they tend

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Speaker 3: to bring money to the US dollar, and that tends

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Speaker 3: to push yields down somewhat. Right now, I think markets

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Speaker 3: are pretty pretty stable. We're not seeing big movements in

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Speaker 3: that way, but generally that's the way I would what

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Speaker 3: I would expect to see when you see heightened geopolitical tensions.

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Speaker 2: When you think about what the markets are reacting to

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Speaker 2: and what could come out of this. Is this more

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Speaker 2: of an inflation worry or a growth concern.

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Speaker 4: Well, it's really hard to say.

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Speaker 3: It really depends on how the situation evolves right now.

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Speaker 3: I don't think of this as maybe in the near

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Speaker 3: term it could be effect of financial conditions and commodity prices.

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Speaker 3: As I mentioned, I don't see this as a major

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Speaker 3: driver of the overall forecast or outlook for economic growth

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Speaker 3: or for inflation.

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Speaker 2: Speaking of inflation, CPI came in much hotter than expected

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Speaker 2: and sort of freaked.

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Speaker 1: Everybody out on Wall Street, and market sort of took

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Speaker 1: that as a turning point in Fed policy. Do see

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Speaker 1: is that way?

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Speaker 3: I don't see it as a turning point. I think

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Speaker 3: that you know, we've we saw inflation come down.

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Speaker 4: Maybe quicker than we expected. Last year.

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Speaker 3: We definitely saw really lower readings and inflation in the

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Speaker 3: final six months that I never thought that that was

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Speaker 3: going to stay that low.

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Speaker 4: That was unusually low.

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Speaker 3: We're now seeing some a little bit unusually high readings.

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Speaker 4: Overall.

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Speaker 3: I think the picture is is is one of that

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Speaker 3: the economy is getting in better balance. We still have

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Speaker 3: a strong labor market, and we're seeing inflation gradually come down. Now,

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Speaker 3: I do think that, you know, for me, what do

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Speaker 3: I see in the data, Well, the economy and then

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Speaker 3: you pointed out the you know, retail sales today, but

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Speaker 3: more broadly, the economy continues to be strong again. I

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Speaker 3: think we're being helped by strong demand and supply and

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Speaker 3: those are helping growth and we're seeing you know, inflation

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Speaker 3: come down a little bit slower than expected, and so

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Speaker 3: you know, I think markets are taking all that information

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Speaker 3: into account and how they how they expect policy to be.

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Speaker 3: For me, you know, data dependent as always, really take

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Speaker 3: the totality of the data and think about what it

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Speaker 3: means for achieving our maximum employment and price stability goals.

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Speaker 3: So I don't see this as a game change, or

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Speaker 3: I think I do think it's important information that will clearly,

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Speaker 3: you know, affect my thinking and my forecast.

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Speaker 2: Even those who've thought about what PCEE might be after

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Speaker 2: the PPI and CPI say, inflation isn't coming down rapidly anymore,

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Speaker 2: but you do have the strong growth, you have very

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Speaker 2: low unemployment. Why cut rates if the economy is doing

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Speaker 2: fine at this level.

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Speaker 3: Well, first of all, I think Monte policy is working

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Speaker 3: at the rates that we have now, so I think

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Speaker 3: I think Monte policy isn't a good place. Over the

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Speaker 3: past six twelve to eighteen months, we've seen all pretty

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Speaker 3: much all the measures of imbalances in the labor marketing

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Speaker 3: and our economy received many of them back to levels

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Speaker 3: we saw in twenty eighteen or twenty nineteen. So we're

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Speaker 3: seeing the you know, restoring balance in the economy. We

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Speaker 3: are seeing a slow decline in inflation. So I do

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Speaker 3: think Monte policy right now is in a good place.

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Speaker 3: I'm not fixated on where the rates need to go

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Speaker 3: over the next year. What I'm focused on is how

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Speaker 3: do we best achieve our maximum employment and price stability goals.

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Speaker 3: The data we're seeing show that the economy is strong

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Speaker 3: and that's really good news, and labor markets strong. At

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Speaker 3: the same time, we are getting better balanced, and we're

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Speaker 3: seeing some decline overall and inflation. So for me, it's

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Speaker 3: really about getting that right and then whatever we need

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Speaker 3: to do to adjust monetary policy we can do to

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Speaker 3: be best continue the progress towards our goals. So that's

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Speaker 3: how I'm thinking about it, and we'll just have to

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Speaker 3: keep watching the data and make the decisions based on

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Speaker 3: those goals.

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Speaker 1: Well, is your base case that you will cut rates

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Speaker 1: this year?

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Speaker 3: My own view is, I think that with inflation continuing

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Speaker 3: to gradually come down, and I guess I would say

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Speaker 3: gradually is the operative word here, and with the economy

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Speaker 3: remaining strong, I do think that given where the level

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Speaker 3: of rates are, real interest rates now are considerably higher

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Speaker 3: than they were before because inflation has come down quite

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Speaker 3: a bit. So we will need a start a process

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Speaker 3: at some point to bring interest rates back to more

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Speaker 3: normal levels.

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Speaker 4: And my own view is that we will.

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Speaker 3: You know that process will likely start this year, but

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Speaker 3: again it's can be driven driven by the data and

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Speaker 3: achieving our goals.

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Speaker 1: So it's possible you don't do anything this year.

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Speaker 3: Well, again you're asking me to speculate and what will happen?

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Speaker 3: And you know, right now, I think monetary policy is

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Speaker 3: in a good place where we're seeing the progress.

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Speaker 4: We're seeing progress.

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Speaker 3: It's a bumpy road on the inflation front, and we'll

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Speaker 3: just have to figure out how to best adjust policy

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Speaker 3: as needed to achieve our goals.

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Speaker 1: Now, you mentioned the real rate is policy tight.

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Speaker 3: Now, I do think we have restrictive monetary policy. I

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Speaker 3: do think policy is tight, So do I what do

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Speaker 3: I look for? Because the economy is growing to grow

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Speaker 3: over three percent, you know, we're adding about what two

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Speaker 3: hundred and seventy five thousand jobs over the first three months,

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Speaker 3: So that seems like an economy that's really strong and

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Speaker 3: not being held back by monetary policy. But if you

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Speaker 3: take a step back, all these measures of imbalances in

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Speaker 3: the labor.

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Speaker 4: Market, whether job openings.

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Speaker 3: Or wage rates, or quits rates, or all the other

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Speaker 3: indicators we look at, all of them are moving from

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Speaker 3: being very tight to less tight, and most of them

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Speaker 3: back to more strong labor market or getting closer there.

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Speaker 3: I mean, job openings are still high, wage growth is

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Speaker 3: still a bit high, but these are all moving in

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Speaker 3: the right direction. So I think the stance of MANTE

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Speaker 3: policy has really been an important driver of restoring balance

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Speaker 3: to the economy and helping bring inflation to towards two percent.

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Speaker 1: What's left with inflation?

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Speaker 2: Is it something that you can affect or are these

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Speaker 2: non interest rate responsive sectors?

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Speaker 3: You know, MANTE policy can affect inflation in the economy.

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Speaker 4: It works through multiple channels.

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Speaker 3: So there are some sectors that maybe are not as intrasensitive,

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Speaker 3: but the economy is interest rates sensitive.

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Speaker 4: We've seen that over the past.

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Speaker 3: Couple of years as we've moved from an accommodated.

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Speaker 4: Policy to a restrictive policy.

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Speaker 3: So Monte policy is working and expected to continue to

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Speaker 3: work to bring inflation down.

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Speaker 4: You're going to see it, you know, show up in.

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Speaker 3: Different parts of the inflation rates, you know, goods versus

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Speaker 3: services and things. But over the past year year and

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Speaker 3: a half we have seen a broad based decline in

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Speaker 3: inflation in all these categories.

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Speaker 4: It's just that we haven't gotten all the way.

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Speaker 3: To two percent, and we just need to keep policy

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Speaker 3: in the right place to achieve that two percent goal.

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Speaker 2: Question I always ask is what are CEO's companies telling

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Speaker 2: you these days about their hiring plans, about what they're

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Speaker 2: having to pay, and about inflation, whether they're raising prices

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Speaker 2: or having to pay higher prices.

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Speaker 3: Well, clearly, if you asked me this question a year

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Speaker 3: or two ago, that's all they would be talking about

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Speaker 3: price increases, compensation increases, the challenges of hiring employees. Today,

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Speaker 3: I think those you know, those comments are still out

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Speaker 3: there a little bit, but far less than before. We're

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Speaker 3: hearing from our context, you know that it's easier to

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Speaker 3: fill positions than it used to be. Wage compensation pressures

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Speaker 3: are less, and price pressures are are less. I think

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Speaker 3: that's consistent with what we're seeing overall in the data.

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Speaker 2: You're the potential growth guy. Has potential growth moved up?

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Speaker 3: You know, I am getting more optimistic about potential growth

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Speaker 3: in the economy.

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Speaker 4: I think for a couple of reasons.

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Speaker 3: One is, you know, through the pandemic and everything that

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Speaker 3: happened after that, I like most people had concerns that

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Speaker 3: the supply side of the economy had suffered, you know,

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Speaker 3: damage the labor force in terms of labor force and participation.

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Speaker 3: And you know, as we've watched the data over the

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Speaker 3: past two years, we've seen a increase in labor force participation,

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Speaker 3: increase in labor force growth, and we've seen a rebound

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Speaker 3: of productivity. Now I'm not saying that we're in some

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Speaker 3: you know, new high growth kind of a world, but

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Speaker 3: I do think a potential growth is probably closer to

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Speaker 3: two percent or a little higher, which is well above

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Speaker 3: a lot of estimates.

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Speaker 4: Of the past few years.

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Speaker 3: And that's a very positive sign for us real incomes

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Speaker 3: and for the economy. And honestly for helping get inflation down.

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Speaker 2: A question for all of our friends around us on

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Speaker 2: trading desks. You had a briefing on QT at the

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Speaker 2: last meeting from the Fed staff, and members, according to

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Speaker 2: the minutes, generally agreed that it should start soon.

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Speaker 1: Does that mean May or does that mean June.

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Speaker 3: Well, I think we said fairly soon, and the you know,

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Speaker 3: I think that the reasoning for slowing the pace of

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Speaker 3: reduction or balance sheet makes a lot of sense. It's

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Speaker 3: a prudent course of action. We are decreasing the balance

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Speaker 3: sheet quite rapidly, and by slowing that we'll have more

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Speaker 3: ability to monitor, assess, and analyze as we get eventually

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Speaker 3: to an ample reserves kind of world that we're aiming for.

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Speaker 3: Everything is going with the balance sheet. Everything is going

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Speaker 3: exactly as planned. Things are going well. When we decide

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Speaker 3: to slow the pace of the balance sheet, that's a

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Speaker 3: decision for the committee. No decision was made at the

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Speaker 3: last meeting, but obviously we'll get together relatively soon and

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Speaker 3: discuss this further. But to me, this is a sign

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Speaker 3: of success of the plans we laid out almost two

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Speaker 3: years ago to reduce the balance sheet. We've had very

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Speaker 3: little disruption in Marcus. It's worked exactly as planned and

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Speaker 3: we're just executing on that plan and that's going very.

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Speaker 1: Smooth, so QT could come before great votes.

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Speaker 4: And these are really separate issues.

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Speaker 3: I mean, on our shrinking the balance, you were focused

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Speaker 3: on getting to ample reserves. On monetary policy, we're very

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Speaker 3: focused on achieving our maximum employment and price stability goals.

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Speaker 3: Those are different objectives. Those instruments can obviously move in

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Speaker 3: different times in different ways.

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Speaker 2: John Williams, thank you very much, President of the New

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Speaker 2: York Federal Reserve,