Source: Wall Street Horizon Author: Fang Jiayao

On Friday, July 5th, Eastern Standard time, John Williams, President of the New York Fed and permanent member of the Federal Reserve Board, stated at an event hosted by the Reserve Bank of India in Mumbai:

"The current inflation rate is about 2.5%, and we have made significant progress in reducing inflation. However, we still have a way to go to achieve the target of 2%. We are determined to accomplish this task."

When asked about the impact of the Fed's balance sheet on stock valuations, Williams said there is no direct connection, but noted that Wall Street's recent performance reflects the actual state of the economy. He said, "The market has been paying attention to the US economy, and I think the same is true of the Indian economy, which continues to perform well."

Williams acknowledged that stock valuations are indeed high in some cases, but overall, the market's outlook for the future US economy is optimistic. Williams said,

"The economy has performed very well. The unemployment rate is low, and the economic growth is good. Therefore, I believe that the current positive momentum in the market is largely based on the strong economic fundamentals."

In addition, Williams discussed the uncertainty of monetary policy against the backdrop of global climate, technological, and supply chain changes, emphasizing the importance of "stable" inflation expectations. He also mentioned the complexity of accurately measuring the long-term neutral interest rate (r-star) and refuted the view that the neutral interest rate has risen since the outbreak of the pandemic. He cited data showing that neutral interest rates in the US and the eurozone are close to pre-epidemic levels.

According to median forecasts, Fed officials raised their expected long-term interest rate from 2.6% in March to 2.8% in June, which was made after a slight increase in March.

Earlier this week, Williams mentioned that he believes the Fed is achieving its 2% inflation target.

Last week's report also showed that the Core PCE Price Index, favored by the Fed, slowed in May, rising only 0.1% month-on-month, the lowest increase in six months, which strengthened expectations that the Fed may begin to gradually ease later this year.

At the June policy meeting, Fed officials decided to keep interest rates unchanged at their highest level in more than two decades and hinted that the expectation of a rate cut this year has decreased since March. The next policy meeting is scheduled for July 30 and 31.

Editor/Lambor