Fed's Williams: Trims his GDP forecast and boosts inflation view
The desk interprets New York Fed President John Williams' recent comments as a signal of increased caution regarding U.S. economic growth and inflation dynamics. Per the full note source, Williams has trimmed his GDP forecast while raising his inflation outlook, reflecting heightened uncertainty in the economic landscape. This nuanced shift suggests a more dovish stance on growth while acknowledging inflationary pressures, particularly from supply chain disruptions and energy costs. As such, traders should remain vigilant about potential market volatility stemming from these evolving economic indicators.
What the desk is arguing
The desk views Williams' remarks as a clear indication of the Fed's cautious approach to navigating an uncertain economic environment. His adjustment of the GDP forecast to a range of 2% to 2.25% from a previous 2% to 2.5% highlights a more pessimistic outlook, while the inflation forecast for 2023 is now set at 3%, up from the prior range of 2.75% to 3%. This shift underscores the Fed's awareness of the persistent inflationary pressures stemming from supply chain disruptions and energy tariffs.
Moreover, Williams' acknowledgment that risks to both sides of the Fed's mandates have increased indicates a more complex economic landscape than previously anticipated. His comments reflect a growing concern about potential adverse scenarios, which could lead to a more cautious policy approach in the coming months.
Where it sits in our coverage
Our consensus target for the USD is 1.075, with a range of 1.04 to 1.12. Notable firms in this space include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26) - citi: 1.12 (Mar26)
This view aligns closely with jpmorgan's target, which is at the upper end of our consensus range, suggesting that the desk's outlook is somewhat optimistic compared to the more conservative stance of bofa.
How other firms see it
Firms like citi and jpmorgan are aligned with the desk's cautious approach, reflecting similar concerns about inflation and growth. In contrast, bofa takes a more bearish stance, suggesting a lower target that indicates a lack of confidence in the Fed's ability to manage inflation effectively.
Traders should keep an eye on the USD/JPY pair, as its trajectory could provide insights into how the market is reacting to the Fed's evolving stance on monetary policy and inflation expectations.
What the calendar says
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New York Fed President John Williams spoke before the Cynosure Group Spring Symposium: US monetary policy remains well positioned for uncertain economy No way to know yet how Iran war impact will play out for U.S. economy Risks to both sides of Fed's mandates have increased Economy is presenting 'unusual set of circumstances' Market energy outlook benign, but there are 'plausible' bad scenarios Inflation likely to be 3% this year, back to 2% target in 2027 'Notable' supply chain disruptions emerging Tariffs and energy are big inflation drivers, underlying inflation mostly stable It's good that inflation expectations remain contained Expects U.S. economic growth between 2% and 2.25% this year Economy has been very resilient Expects jobless rate to stay around 4.25% to 4.50% Policy well positioned for economic risks, uncertainty Williams' prior remarks came at the Federal Home Loan Bank of New York symposium on April 16, with sideline comments to reporters the same day. Since then, his GDP forecast tightened to 2%–2.25% (from 2%–2.5%). "Likely to be 3% this year" — that's the upper end of his prior 2.75%–3% range, suggesting energy/supply pressures are biting more than he expected three weeks ago. His 2027 return to target unchanged. "Risks to both sides of the mandate have increased" — in April he framed risks as "in balance." Today's wording acknowledges both sides got worse, which is highlighted in his forecasts.
Overall he's marginally more dovish on growth, marginally more hawkish on near-term inflation, more openly worried about tails. Like everyone, he wants to wait and see how it all shakes out. This article was written by Adam Button at investinglive.com.
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