The policy maker also said that banking sector liquidity levels do not signal any near-term need for the Fed to stop the contraction of its balance sheet, a process which has complemented rate hikes aimed at bringing inflation back to 2%.

“We have seen meaningful progress on restoring balance to the economy and bringing inflation down,” Williams said in a speech before the Bronx EDC and BICNY’s 2024 Regional Economic Outlook in White Plains, N.Y., while adding “our work is not done.”

“I expect that we will need to maintain a restrictive stance of policy for some time to fully achieve our goals, and it will only be appropriate to dial back the degree of policy restraint when we are confident that inflation is moving toward 2% on a sustained basis,” Williams said.

The official said the economic outlook remains “highly uncertain” and said decisions about monetary policy will be made meeting-by-meeting, based on “the totality of the incoming data, the evolving outlook, and the balance of risks.”

Williams’ comments were his first of the year and followed a television appearance in late December that pushed back at the market view that the most recent rate-setting Federal Open Market Committee meeting had set the stage for rate cuts by spring. At the December gathering officials maintained their overnight rate target at between 5.25% and 5.5%, while penciling in a several rate cuts for this year amid expectations that softening inflation pressures would continue to ease back toward the 2% target.

The meeting drove markets to price in a possible rate cut by March, a view investors still hold, even as a number of central bankers have argued over recent weeks that it’s too soon to say when a rate cut might happen.

Speaking with reporters after his remarks, Williams declined to comment on the market's bet on the near-term outlook for monetary policy. "Before we dial back on the restrictive stance of policy, I think it's important that we're confident that we're moving toward 2%," Williams said, adding that when it comes to lowering rates, "I'm not making a prediction" as to when that might take place. But he also said the Fed is in a "good place" to take in data and consider its next moves.

The New York Fed president reiterated his view that over time monetary policy will need to bring rates down to track declining inflation, because keeping them in place in such an environment would create a rise in monetary policy restraint.

Williams also declined to say how a broad easing in financial conditions that in theory adds lift to the economy will affect the Fed outlook. He noted markets have been very volatile but over the longer run, they have gotten tighter than they were.

INFLATION ENDGAME IN SIGHT

Williams said in his formal remarks the Fed has made considerable progress on lowering inflation, including in challenging areas like those for services. He sees inflation ebbing to 2.25% this year and to 2% next year. “We are clearly moving in the right direction,” Williams said, adding “we still are a ways from our price stability goal.”

The New York Fed leader also said monetary policy will slow growth to about 1.25% this year and cause the unemployment rate, now at 3.7%, to rise to 4%.

Williams also said the shrinkage of the Fed’s balance sheet, commonly referred to as quantitative tightening, has moved forward smoothly and there are yet to be any signs of liquidity issues that would cause the Fed to stop an effort that has shrunk its holdings by over $1 trillion.

Williams did not give a time table for changing gears on the balance sheet, while noting that matter would be under debate by the Fed this year. The official told reporters recent money market volatility represents a normalization for that part of the market and said that it wasn't affecting the Fed's ability to control the federal funds rate.