Thank you, President Williams. It’s wonderful to be back in New York, and it’s an honor to talk to you, directors and advisers of the second district. You all play an extremely important role for the Federal Reserve Bank of New York and, in fact, for the entire system of the Federal Reserve. You and your peers across the country, inform President Williams and other bank presidents about how you see the economy take place in your communities and in your industries. The presidents, in turn, share this vital information with all the members of the Federal Open Market Committee (FOMC) so that we can make the best decisions of monetary policy for the benefit of all Americans. Thank you for the important contributions.1
In a spirit of information sharing, I thought it would be useful to share with you my economic prospects. First of all, I will discuss how I see a recent economic activity. Then, I will talk about the developments concerning the two sides of our double mandate, our maximum employment and the stability of the prices. Finally, I will offer my current vision of monetary policy.
Economic activity
While the economy has entered an increased period of uncertainty this year, the underlying data in the first quarter showed resilience. As you can see in Figure 1, the gross domestic product (GDP) was slightly contracted by 0.3% in the first quarter, on an annualized basis, after having increased at a rate of 2.4% in the fourth quarter of 2024. This change overestimates, however, active deceleration. An increase in imports apparently before early changes in trade policy did not seem to be fully reflected in stock or expenses. This disalember has complicated the interpretation of measured GDP data. Private interior end purchases, which exclude public spending, stocks and net exports, generally gives a better reading than GDP on the underlying momentum of the economy. This reached a rate of 3% in the first quarter, in accordance with the readings of last year.
By looking at Figure 2, you can see that the consumer expenses adjusted to inflation were strong last year. Expenditure relaxed in early 2025, which could partly reflect the bad weather and the challenges of seasonal adjustment. Expenditure rebounded in March, perhaps reflecting certain purchases before the expected commercial policy changes.
Of course, these observations of the economic activity of the first trimester are now in the rear view mirror. Price announcements and increased uncertainty about government policies in general are dominant economic developments in more recent weeks and led me to carefully examine my forecasts. It is not my role to express opinions on policies from administration or congress, but I study the implications of these policies on economic activity and inflation.
Various surveys show a drop in the feeling of business linked to commercial policy. The beige book has indicated that some retailers expect to increase prices in response to prices, which could then limit expenses, especially by consumers most sensitive to prices. Manufacturers have experienced the risk of disruption of the supply chain linked to trade policy changes. In addition, uncertainty is quite high. As a result, I adjusted my expectations in terms of economic growth this year, but I see that the American economy continues to develop. Of course, trade policy is still evolving, so its ultimate economic implications are not known and I will carefully follow developments.
Labor market
Regarding the labor market, conditions continue to be solid. As you can see in Figure 3, the unemployment rate was 4.2% in April. It has fluctuated in a narrow and historically low beach between 4 and 4.2% from the middle of last year. US employers have added 177,000 jobs to pay last month, effectively corresponding to average growth in the past six months. The payroll increased at a rate in accordance with a stable unemployment rate and a participation rate in the flat workforce. Hiring has slowed down the rapid pace recorded earlier in current expansion, but layoffs are historically low. This can be seen in Figure 4. New applications for unemployment benefits this year remain in the same low range recorded in the previous three years.
Looking at Figure 5, you can see that the report of vacant posts to the unemployed was unemployed was March 1, well down compared to a peak of 2 in 2022. The measure is consistent with a labor market which seems to be in balance and is not a source of inflationary pressure. For the future, I look at the signs that the labor market could cool because the price increases are starting to weigh on economic activity.
Inflation
With regard to inflation, recent data is consistent with additional progress towards our inflation objective of 2%; However, this objective has not yet been achieved. By looking at Figure 6, the blue line shows the inflation measured by the price index for personal consumer expenditure (PCE) decreased by a peak greater than 7% in mid-2022. In March, the PCE prices increased by 2.3% compared to the previous year. The basic inflation of the PCE, which excludes the volatile energy of consumers and food prices and is generally a better indicator of future inflation, the red dotted line, was 2.6%. Figure 7 shows the components of central inflation of the PCE, which can provide an overview of inflationary pressure sources. Inflation of the housing services, the purple dotted line, has fallen in particular since the beginning of 2023 and could continue to support the disinflation process. The inflation of the basic services, the red line in dotted lines, has largely moved laterally since the first part of last year, which contributes little to additional disinflation, and I expect this model to continue too. On the other hand, the inflation of goods, apart from food and energy, the blue line, has resumed a little this year.
However, there is a lot of uncertainty on the future path of inflation. If the increases in the prices announced so far are supported, they are likely to interrupt the progress of disinflation and generate at least a temporary increase in inflation. The question of whether the prices create a persistent increase in inflation will depend on the way in which trade policy is implemented, the transmission of consumer prices, the reaction of supply chains and the performance of the economy. Short -term inflation expectations have increased in survey and market measures, but I think it should be noted that most of the longer -term inflation expectations were largely stable, which suggests that the American people include the federal reserve commitment to refer inflation to our 2%objective.
Although the commercial policy has received most of recent attention, I remain focused on the global effect of all of the various changes in government policy, including commercial, immigration, regulation and tax policies, as well as their net effects on the economy. This net effect will probably remain uncertain for a while.
Monetary policy
Last week, I supported the FOMC decision to hold the rate of federal funds at current levels as the best policy to reach our double mandate of maximum employment and price stability. As you can see in Figure 8, the FOMC acted last year to reduce the policy rate from a complete percentage point. During the last meetings, the rate has been maintained as I consider a moderately restrictive level. I consider the current position of the policy and well placed to respond to the developments that can occur.
Regarding the path of the rate of policy in the future, I will carefully assess incoming data, evolving perspectives and risk balance. Various measures of the feeling of consumers and companies have decreased sharply this year, and I will very carefully monitor the signs of weakening economic activity in difficult data. At the same time, higher prices could cause higher inflation this year. It is not certain that inflationary pressures would be temporary or persistent. Our monetary policy actions are guided by our double mandate to promote maximum employment and stable prices for the American people. With the increase in risks on both sides of our mandate, I think that the current position of monetary policy is well placed to respond in a timely time to potential economic developments.
Conclusion
The uncertain economic perspectives have a challenge for monetary decision -makers. It is essential that we have the best information available from a wide range of sources, which is still why your efforts to hold President Williams and other informed monetary decision -makers are so critical. The development of effective policies begins with people in all corners of this country, notably New York, New Jersey, Connecticut, Puerto Rico and the US Virgin Islands. Directors and advisers as it makes it possible. Thank you again.
1. The opinions expressed here are mine and not necessarily those of my colleagues from the federal open market committee. Come back to the text
