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Fed’s Williams Sees Soft Landing as Rates Cool Overheated Housing, Labor Markets


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By Geoffrey Smith — The U.S. economy is strong enough to withstand the tightening of monetary policy mapped out by the Federal Reserve at its latest meeting, New York Fed President John Williams said in a speech on Tuesday.

Addressing a central banking conference in Germany, Williams said that the Fed’s policy would cool overheated housing and labor markets without stopping the economy from growing. He said he still expects the gross domestic product to rise some 2% this year, even as the Fed pushes interest rates up to a level high enough to bring down inflation.

Answering questions from the audience, Williams was quoted by newswires as saying that he expects the Fed to engineer a “soft landing” for the economy, and said he expected unemployment to stay around its current low level of 3.5% of the workforce. That would also entail inflation, as measured by the core index for personal consumer expenditures, as falling to 2.5% on average next year from around 4% this year, finally coming “close” to the Fed’s 2% target in 2024.

There was nothing in Williams’ speech to suggest that the financial market volatility that followed the Fed’s first half-point rate hike in two decades was any particular cause for concern. Rather, he repeated that higher interest rates were the right tools to take the heat out of the interest-rate sensitive housing market and to rebalance a labor market where demand is acutely outpacing supply.

By the same token, Williams also said nothing to suggest that he would argue for bigger rate increases than the Fed is currently guiding for. Chairman Jerome Powell had said at his press conference last week that he expected half-point increases to be discussed, in the next couple of meetings.

“Our monetary policy actions will cool the demand side of the equation,” Williams said. “I also expect that over time, the factors contributing to supply shortages will be resolved, so that some of the rebalancing will be accomplished through increases in supply, both in the United States and around the world.”

Williams is the first of a host of Fed officials due to make public appearances Tuesday. Richmond’s Tom Barkin and Atlanta’s Raphael Bostic are both due early in the day, while Minneapolis’ Neel Kashkari, governor Chris Waller and Cleveland’s Loretta Mester are due later.

Fed’s Williams Sees Soft Landing as Rates Cool Overheated Housing, Labor Markets

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