Federal Reserve (Fed) Bank of New York John Williams noted during an appearance at the Biennial Macroeconometric Caribbean Conference, in Nassau, that the Fed’s job of forecasting economic outcomes is becoming increasingly difficult, specifically under the weight of trade war threats from the Trump administration.
Key highlights
The Fed’s current forecasted rate path looks reasonable.
Downside economic risks and upside inflation risks are both very high.
The key issue for monetary policy is managing risks and uncertainties.
The US central bank is not in a hurry to make the next monetary policy decision. It has become harder to forecast the outlook right now.
It is essential to keep inflation expectations contained.
The University of Michigan inflation expectations data is an outlier.
I take comfort in the stability of longer-term inflation expectations.
I can’t say yet what the clear impact of tariffs will be on inflation.
The Fed has gotten more clarity on the Trump policy agenda.