A senior Federal Reserve official this week signaled little urgency in cutting interest rates further, reinforcing expectations that the U.S. central bank will keep borrowing costs stable at the end of the month.
John C. Williams, president of the Federal Reserve Bank of New York, said the central bank was “well positioned” to support the job market and ensure inflation returned to the Fed’s 2% target after three quarter-percentage-point reductions last year.
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Interest rates are between 3.5% and 3.75%, a range that Williams says is “closer to the neutral level.” This is a level that neither accelerates nor slows down economic growth.
Williams, in comments to the Council on Foreign Relations, struck an optimistic tone about the economic outlook, predicting that the unemployment rate would stabilize around the current level of 4.4%, while growth would accelerate and inflation would cool.
He later told reporters that he didn’t think there was “strong pressure to do anything one way or the other” in terms of monetary policy.
A pause at the Fed’s next meeting, on Jan. 27 and 28, would keep the central bank at odds with President Donald Trump, whose administration sharply stepped up its pressure on the institution last weekend by opening a , Fed chairman.
The Justice Department’s extraordinary escalation, revealed by The New York Times on Sunday, drew a rare rebuke from Powell, who accused the administration of using legal threats to push for lower borrowing costs.
The Fed’s mandate is to prioritize low, stable inflation and a healthy job market free from political interference.
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Congress granted this autonomy to the central bank to ensure that the Fed does what is best for the economy, not what is most politically expedient.
Many legal experts warned that that independence was under threat following the investigation, which focuses on Powell and his oversight of a $2.5 billion overhaul of the Fed’s Washington headquarters.
Williams defended Powell in a discussion hosted by the Council on Foreign Relations, saying the Fed chairman is “completely dedicated” to the institution and a man of “impeccable integrity.”
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Williams, who is a close ally of Powell, also warned of the costs if the Fed’s independence is compromised. That carries the risk of “unhappy outcomes” marked by a less stable economy and higher inflation, he said.
Williams acknowledged to reporters that the inquiry represented an escalation in what the Fed had been facing from management, noting that there is a “difference between criticizing” the central bank and investigating its top official.
The source of tension between the president and the Fed stems from the institution’s reluctance to sharply reduce borrowing costs, as Trump has demanded.
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Many policymakers instead urged caution in the face of uncertainty about inflation, which has remained above the 2% target for about five years.
The labor market, which has shown some signs of weakening, does not yet appear on the verge of collapse, which helps reinforce the idea that the central bank can take it easy with further cuts.
Trump, for his part, has advocated interest rates around 1%, a level normally associated with a recession.
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The president is in the process of selecting a leader to replace Powell when his term ends in May.
One concern is that Trump’s criteria that his nominee needs to support lower interest rates will mean that the pick faces a credibility problem from the start.
Williams told reporters on Monday that he hoped the next president would come into office with the understanding that the central bank has a “very, very important responsibility to the American people.”
“When we don’t get it right, it matters a lot. When we get it right, it matters a lot,” he added.
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