Federal Reserve Bank of New York President John Williams said that the long-term trends that led to the reduction of neutral levels for interest rates before the outbreak of the coronavirus pandemic still prevail.
On Friday, July 19, during a speech at a panel organized by the Central Reserve Bank of Peru, Mr. Williams noted that his own Holston-Laubach-Williams estimates for r-star in the United States, for Canada, and the euro area are about the same level as they were before the pandemic. In his opinion, the neutral rate as an impact factor is not a source of acceleration or a reason for slowing down the dynamic of the economy. John Williams noted that the underlying trends that kept rates low before the pandemic are still largely intact.
This week, the president of the New York Fed also said that the data on the inflation process in the United States, which has been observed in recent months, were encouraging. At the same time, he noted that, in his opinion, more information is needed on the dynamic of the specified process to form confidence that the growth in the cost of goods and services will return to the US financial regulator’s target of 2%. Moreover, John Williams said that officials will receive a lot of important data in the period from July to September. It is worth noting that there is a widespread expectation among experts that in September the central bank of the United States will begin to ease its monetary policy strategy.
The Fed will hold a policy meeting this month. The relevant meeting of officials of the central bank of the United States will be held on July 30-31. It is expected that for about a week before the policy discussion, the Fed will adhere to the tactic of silence.
John Williams’ statements about a neutral rate may be something like a hint that the cost of borrowing will be lower after inflation is fixed at around 2%. At the same time, this is just a guess.
As we have reported earlier, Fed Keeps Interest Rates at 23-Year High.
