By Tony Mace
NEW YORK (MaceNews) – The Federal Reserve cut rates last year to offset the disinflationary impact of global headwinds, and now policy-makers are again watching for a possible slowdown abroad, in particular the impact of the novel coronavirus on China, New York Fed President John Williams said Thursday.
Williams, answering audience questions after an appearance at the New York Bankers Association, said the Fed must remain alert to manage the risk of deflationary pressures from abroad, even as his base case calls for continued moderate U.S. growth.
The Fed’s three rate cuts last year were intended “to offset and manage some of the risks that were coming from global developments,” and those rate cuts “have positioned us well to keep the economy growing above trend,” above 2 percent, that will keep the labor market strong and inflation around 2 percent, Williams said.
“I feel like last year we dealt with a lot of uncertainty, slowing global growth and other issues, we did manage to adjust monetary policy to keep the economy on track,” he said. “So going forward, what are the uncertainties – some of them the same, uncertainties about global growth, issues around whether it’s Chinese growth and the corona virus obviously brings that into the forefront. How will the Chinese economy respond to that, and how will that affect their growth and therefore the region’s growth?
“Clearly the issue is: have we seen stabilization in global growth and manufacturing in parts of the world? Will that stabilization continue or maybe turn back up, or maybe stagnate a bit there? And then the final one is the low inflation. My forecast is that it will pick back up to close to 2 percent this year if things come together.”
“Clearly, we are are in a low growth, low inflation global environment, and that creates uncertainties around the outlook,” Williams said, adding, “I think we just have to go back to our data dependence, make plans, adjust plans based on the information that is coming in. Importantly, there is a lot of risk management to this — the baseline outlook that I have laid out is pretty darn good. I’ll take that …. but we also have to manage those uncertainties.”
“We think about them (the risks), whether it was a discussion in the last couple of years about trade uncertainty, or obviously the effects of the coronavirus. These are not just uncertainties that you can put in a model and compute a number. There’s just an inherent ambiguity about how those things will play out, so we just have to be willing to observe, monitor, and analyze … and then be willing to make the right decision.”