When New York Fed President John Williams talked about the need to 'vaccina...
NEW YORK - When New York Fed President John Williams talked about the need to “vaccinate the economy” on Thursday, markets listened. And when the New York Fed itself spoke up later to clarify his remarks, investors were again all ears.
One reason for investor confusion stands out. Fed Chair Jerome Powell has set the table for an interest-rate cut but has failed to win consensus why one is needed. Policymakers in recent weeks have sketched out rate-cut rationales ranging from bond market behavior to low inflation to the need to boost wages. When Williams, Powell’s No. 2 at the policy-setting table, appeared to provide some clarity, traders jumped on it.
In the speech, Williams cited years of his own research. Stretching back at least five years as a policymaker he has repeatedly used similar phrasing to describe how the Fed should behave when interest rates are near zero.Markets have long been expecting the Fed to cut rates at its July 30-31 meeting. Williams’ comments were read by some as not only endorsing that view, but suggesting the need for a deep, 50-basis-point cut.
President Donald Trump, who has repeatedly castigated the Fed for raising rates, also weighed in. “I like New York Fed President John Williams first statement much better than his second,” Trump tweeted Friday. Fed policymakers, meanwhile, face the risk of disappointing markets if their communication is not pitch-perfect. Any selloff could worsen financial conditions and increase the risk of a bad outcome for the economy.
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