New York Fed chief says it’s time to lower rates with inflation cooling and the labor market slowing

New York Federal Reserve President John Williams

In remarks following the August jobs report release, Federal Reserve Bank of New York President John Williams said economic conditions call for interest rate cuts.

Williams pointed to easing inflation, adding in a moderated discussion that the US is seeing a historically low unemployment rate.

“With the economy now in equipoise and inflation on a path to two percent, it is now appropriate to dial down the degree of restrictiveness in the stance of policy by reducing the target range for the federal funds rate,” Williams said in a speech on Friday.

Williams spoke after the highly anticipated August jobs report, which showed the unemployment rate ticked down even as fewer jobs than expected were added in August. US employers added 142,000 jobs for the month, bringing the unemployment rate down to 4.2% from 4.3%.

Williams said those numbers are “consistent with what we’ve been seeing — a slowing economy and a cooling off in the labor market.”

While unemployment has risen in recent months, particularly with a surprise uptick in July, Williams said the current rate is still historically low. He forecasts the rate will end the year at about 4.25% before falling to a longer-term rate of about 3.75%.

All eyes have been on the labor market following Fed Chair Jerome Powell’s remarks at the central bank’s Jackson Hole conference, in which he said the Fed does not welcome any further slowing of the job market.

The sentiment reflects a shift in the Fed’s focus on inflation and toward the labor market, which is the other side of the Fed’s dual mandate.

“The risks to our two goals are now in better balance, and policy needs to adjust to reflect that balance,” Williams said.

Williams did not indicate how deep rate cuts will ultimately be, but said the time has come, echoing Powell’s Jackson Hole speech.

“The stance of monetary policy can be moved to a more neutral setting over time depending on the evolution of the data, the outlook, and the risks to achieving our objectives,” he said.