By Michael S. Derby
GARDEN CITY, N.Y. (Reuters) -New York Federal Reserve President John Williams said on Wednesday that even as there's still some distance to cover in achieving the U.S. central bank's 2% inflation target, the door is opening to interest rate cuts this year depending on how the data come in.
"While the economy has come a long way toward achieving better balance and reaching our 2% inflation goal, we are not there yet," Williams said, adding, "I am committed to fully restoring price stability in the context of a strong economy and labor market."
Williams was speaking to a gathering of the Long Island Association in Garden City, New York. He did not offer any firm guidance on what's next for the U.S. central bank's monetary policy stance, although he noted the start of the process of lowering rates could come "later this year."
Williams also said the Fed "has the time" to take in data before making the call to lower borrowing costs, and noted "as we navigate the remainder of this journey, I will be focused on the data, the economic outlook, and the risks, in evaluating the appropriate path for monetary policy that best achieves our goals."
Fed officials at their policy meeting in December penciled in three rate cuts to the benchmark overnight interest rate, which is currently set in the 5.25%-5.50% range. Recent inflation data has caused financial markets to push back the timing of the first rate cut.
Williams told reporters after his speech that the economy looks much like it did in December when officials penciled in the rate cuts. He said "my view is that something like the three-rate-cuts-this-year projection from December is a reasonable kind of starting point" for the Fed to debate, adding "we're in a good position" when it comes to using monetary policy to achieve the central bank's goals.
The Fed is set to update key forecasts on the economy and monetary policy at its March 19-20 policy meeting.
In his speech, Williams said inflation has "declined significantly" over the past year and a half amid "broad-based" retreats in the components that make up inflation measurements. But he added, "we still have a ways to go on the journey to sustained 2% inflation."
Williams said he sees inflation ebbing to between 2% to 2.25% this year and to 2% next year. Overall inflation pressures measured by the personal consumption expenditures price index were up by 2.6% in December from the same month a year earlier.
Noting the unexpected strength of recent consumer level inflation data, Williams said there are likely to be "bumps along the way" back to 2%.
Williams also said he expects economic growth to slow this year to around 1.5% and for the current 3.7% unemployment rate to rise to around 4%. He said that while risks to the outlook remain, the economy has nevertheless become more balanced.