Fed’s Williams: Expect growth to slow considerably, inflation and unemployment higher

• Expect growth to slow considerably, inflation and unemployment higher.
• We are focused on keeping inflation as close to target as possible.
• Key to think in scenarios in times of uncertainty.
• Factors keeping the long-run neutral rate low are still in place.
• I still see the long-run neutral rate as quite low.
• The markets are very focused on downside risks at the moment.
• Markets appear convinced Fed will get inflation back to 2%.
• Now is an inflection point between hard and soft data.
• Hard data is telling us the economy is good right now.
• The next few quarters will help illuminate economy’s state of affairs.

The New York Fed desk is also responsible to gathering “market intelligence” besides executing the FOMC policy. The part where he says that the markets are very focused on downside risks at the moment is likely coming from such market intelligence.

It’s not something new of course, but the rally in the stock market of the past weeks was based on optimism, and most of that optimism is now priced in. So, there are risks of disappointment ahead and there’s no room for complacency.

This article was written by Giuseppe Dellamotta at www.forexlive.com.