John Williams, Interview: Yahoo Finance

Inflation

“So we’re seeing signs of inflation slowing, but inflation is still very high. And I would just mention that some of this core services inflation excluding housing, that hasn’t bunched yet, so still got our work cut out for us to get inflation back to 2%.”

Banking Crisis

“It clearly could be a negative shock (Banking Crisis) to the economy and cause the economy to slow further. But right now we’re not seeing those effects. And actually, the banking system is really stabilized. And so it’s pretty much focused on the two banks that failed. So I guess right now I’m not thinking that it would be such a big negative on the outlook, but we’re going to have to watch the data carefully.”

Fed Funds

“Well, so right now I think we’ve gotten monetary policy into a restrictive stance … if you look at the median dot, if you will, people expect maybe one more rate increase. I think depending on conditions, we’ll see what we need to do. I think really it’s going to be a period of also just learning along the way, are we really getting to the sufficiently restrictive policy to make sure that we bring inflation down 2%? We need to get that done the next couple years, so we need to get policy right for that.”

“Well, that’s a reasonable starting place (Fed Funds between 5-5.25% and then pausing). I mean, that’s the median we saw from my colleagues. Again, it have to be driven by the data. I will say that one thing that you have paying attention to is the financial or the credit conditions, but also do we really see signs of this underlying inflation coming down.”

Rate Cuts

“Well, I think the real issue is if inflation comes down, we’re going to need eventually, not soon, but if inflation comes down, we’ll need to lower the interest rates because otherwise real or inflation adjusted interest rates will go up. So if you look in the economic projections that we put out in March, at least the median dot has the funds rate going down in next year and the year after. I think that’s really primarily driven by the fact that inflation is coming down and we’ll be moving monetary policy to a more normal stance.”

Balance Sheet

“Well, I really think that the shrinking of our balance sheet, the QT as you mentioned, is obviously something that has been going on for quite some time, it’s going very smoothly. I don’t see that as the main area of focus for thinking about monetary policy. Really, the primary instrument of monetary policy is the federal funds target and we can adjust what we do with that to best achieve our goals. Again, I think bringing the size of our balance sheet down is working really well. It’s not something that I would see as something we would need to adjust anytime soon.”