A top official at the Federal Reserve on Monday conveyed little urgency to further lower interest rates, reinforcing expectations that the central bank will hold borrowing costs steady at the end of the month.
John C. Williams, president of the Federal Reserve Bank of New York, said the central bank was “well positioned” to shore up the labor market and ensure that inflation eased back to the Fed’s 2 percent target after three quarter-point reductions last year. Interest rates stand between 3.5 percent and 3.75 percent, a range that Mr. Williams said was “closer to neutral.” That is a level that neither speeds up economic growth nor slows it down.
Mr. Williams, in remarks to the Council on Foreign Relations, struck an upbeat tone about the economic outlook, forecasting that the unemployment rate would stabilize around its current 4.4 percent level while growth accelerated and inflation eased.
He later told reporters that he did not think there was “strong pressure one way or another to do anything” in terms of monetary policy.
A pause at the Fed’s next meeting on Jan. 27-28 would keep the central bank at odds with President Trump, whose administration sharply ratcheted up its pressure campaign against the institution this weekend by opening a criminal investigation into Jerome H. Powell, the Fed chair.
The extraordinary escalation from the Justice Department, which was revealed by The New York Times on Sunday, prompted a rare rebuke from Mr. Powell, who accused the administration of using legal threats to push for lower borrowing costs.
The Fed’s mandate is to prioritize low, stable inflation and a healthy labor market free of political meddling. Congress granted the central bank that autonomy in order to ensure that the Fed does what is in the best interest of the economy, rather than what is best politically. Many legal experts warned that this independence was under threat in the wake of the investigation, which centers on Mr. Powell and his oversight of a $2.5 billion renovation of the Fed’s headquarters in Washington.
Mr. Williams defended Mr. Powell in a moderated discussion hosted by the Council on Foreign Relations, saying the Fed chair is “completely dedicated” to the institution and is a man of “impeccable integrity.”
Mr. Williams, who is a close ally of Mr. Powell, also warned about the costs if the Fed’s independence is jeopardized. That risks “unfortunate outcomes” marked by a less stable economy and higher inflation, he said.
Mr. Williams acknowledged to reporters that the inquiry was an escalation in what the Fed had faced so far from the administration, noting that there was a “difference between criticizing” the central bank and investigating its top official.
The source of tension between the president and the Fed stems from its reluctance to sharply lower borrowing costs, as Mr. Trump has demanded. Many officials have instead urged caution given uncertainty over inflation, which has remained stuck above the 2 percent target for roughly five years. The labor market, which has shown some signs of weakening, does not yet appear to be on the cusp of cracking, helping to reinforce the idea that the central bank can take its time with further cuts.
Mr. Trump has instead called for interest rates as low as 1 percent, a level typically associated with a recession. The president is in the process of selecting a chair to replace Mr. Powell once his term ends in May. One concern is that Mr. Trump’s criterion that his pick must support lower rates will mean his selection will have a credibility problem from the start.
Mr. Williams told reporters on Monday that he hoped the next chair would come in with an understanding that the central bank had a “very, very important responsibility to the American people.”
“When we don’t get it right,” he added, “it matters a lot. When we get it right, it matters a lot.”
Colby Smith covers the Federal Reserve and the U.S. economy for The Times.
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