Fireside Chat, Interview, Conference Presentation
Conversation with Federal Reserve Bank of New York President & CEO John Williams | Global Conference
- The Federal Reserve anticipates supply-demand balance restoration will continue over the next 18 months to sustainably achieve 2% inflation, maintaining a restrictive monetary policy stance until data supports rate cuts.
- GDP growth is forecast for the current year in the 2% to 2.5% range, a slowdown from the previous year's 3%, driven by consumer resilience despite lower income groups having largely spent down excess savings.
- Labor market dynamics are expected to shift with immigration-driven supply increases offsetting labor force participation levels that are likely peaking, while significant future improvements in participation are not anticipated.
- Productivity growth is characterized as uncertain, potentially ranging from a return to past levels to a strong decade of expansion similar to the late 1990s if AI drives innovation, though AI applications may alternatively reduce costs by automating jobs.
- Investment in AI, green infrastructure, and defense is uncertain regarding its ability to offset low global interest rates driven by higher global savings and lower investment demand, with a timeline of several years typically required for new technology to impact productivity.
- The balance sheet reduction process is expected to proceed without major disruption, while delinquency rates on credit cards and auto loans are projected to rise as households exercise caution in spending.
- Global economic volatility is forecast to exceed levels seen in the 1990s and 2000s, necessitating preparation for supply interruptions, though a complete fragmentation of the global economy is currently viewed as premature given plateaued trade volumes.
- Federal Reserve strategy prioritizes navigating these uncertainties to sustain price stability and labor market strength, monitoring whether supply shocks and investment trends will necessitate rates remaining higher for longer.