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Investing.com -- John C. Williams, President and CEO of the Federal Reserve Bank of New York, recently delivered remarks at Pace University, discussing the past, present, and future of the U.S. economy. Williams emphasized that the views he expressed do not necessarily reflect those of the Federal Open Market Committee (FOMC) or others in the Federal Reserve System.

Reflecting on 2024, Williams noted that the economy had returned to a balanced state. The FOMC's measure of inflation, the personal consumption expenditures price index, ended 2024 slightly above 2.5%. This level, while still somewhat elevated, represents a significant decrease from the 40-year high of 7.25% inflation recorded in June 2022. The reduction in inflation has been broad-based, across all major categories of goods and services.

The labor market, once heated in 2021 and 2022, has cooled and returned to more normal levels, with the unemployment rate stabilizing around 4%. Despite this cooling, the economy continued to grow at a solid rate, with real GDP increasing 2.5% in 2024, following a growth of over 3% in 2023. This growth was fueled by robust gains in the labor force and productivity.

In response to these developments, the FOMC shifted its monetary policy stance from one that tightly constrains demand to one that is less restrictive. Over three meetings in late 2024, the Committee lowered the target range for the federal funds rate by a total of 100 basis points.

Entering 2025, Williams stated that the economy is in a good position, with growth remaining solid, supported by strong consumer spending. He also pointed to several signs that suggest inflation will continue to move toward the FOMC's 2% longer-term goal, although he noted it will take time to achieve this target on a sustained basis.

In terms of the labor market, Williams mentioned that it is now balanced, and wage growth has slowed to levels broadly consistent with productivity trends and 2% inflation. He also noted that measures of underlying persistent inflation have moved in the right direction, and inflation expectations remain well anchored.

At its most recent meeting in January, the FOMC decided to leave the target range for the federal funds rate unchanged at 4.25% to 4.5%. The process of gradually reducing the Fed's securities holdings is proceeding smoothly.

Looking forward, Williams expects real GDP growth to move to around 2% in 2025 and 2026, which is near his estimate of its long-run potential rate. He anticipates the unemployment rate to remain essentially flat at around 4% to 4.25%. He also expects overall inflation to remain around 2.5% this year and then decline to the 2% goal in the coming years.

Williams concluded by saying that the economic outlook remains highly uncertain, particularly around potential fiscal, trade, immigration, and regulatory policies. He remains committed to bringing inflation back to the 2% target on a sustained basis, while being watchful to risks to both sides of the Fed's dual mandate.

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