Fed Williams: Inflation outlook has improved, three rate cuts in 2024 a good baseline for Fed

President of New York Federal Reserve (Fed) John Williams noted on Wednesday that the Fed is likely to begin cutting interest rates in 2024, albeit in the latter half of the year.

Key highlights

• Inflation pressures have fallen amid broad-based improvement.
• The path back to 2% inflation is likely uneven.
• Incoming economic data will determine monetary policy.
• Remains fully committed to achieving 2% inflation target.
• Still a ways to go before hitting 2%.
• Current unemployment of 2.7% is around the long-term level.
• Economy and labor market remain strong, imbalances are waning.
• Fed's Williams predicts inflation will hit 2.0-2.25% in 2024, finally hit 2.0% in 2025.
• Sees growth at 1.5% this year, unemployment to peak around 4%.
• Risks exist on both the up and down sides.
• Expected to see more of a decline in Fed reserves, will be paying attention to what point it will be appropriate to revisit Quanititative Tightening (QT).
• Debate over rate cuts is a sign of progress on inflation.
• Too early to tell if Fed is extracting the right signals from housing inflation.
• Fed is likely to cut rates later this year.
• Pandemic aftermath is still affecting economy, but remains optimistic.

Further Fed Williams comments

• Three interest rate cuts in 2024 is reasonable for Fed policymakers to debate.
• US economy is in a similar place to where it was at the Fed's December meeting.
• It remains unclear what impact a US government shutdown would have on the economy.