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NY Fed President John Williams

CNBC Unique: CNBC Transcript: New York Federal Reserve President John Williams Speaks with CNBC’s Steve Liesman Right now

NY Fed President John Williams

WHEN: At this time, Friday, December 21, 2018

WHERE: CNBC’s “Squawk on the Street” – reside from the Federal Reserve Financial institution of New York

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The next is the unofficial transcript of a CNBC EXCLUSIVE interview with New York Federal Reserve President John Williams and CNBC’s Steve Liesman on CNBC’s “Squawk on the Street” (M-F 9AM – 11AM) as we speak, Friday, December 21st. The next is a hyperlink to video of the interview on

Watch CNBC’s full interview with New York Fed President John Williams

Watch CNBC’s full interview with New York Fed President John Williams from CNBC.


CARL QUINTANILLA: Company issuance, a seven yr low when it comes to bonds. Let’s get to Steve Liesman, our Senior Economics Reporter with the interview of the morning. Hey, Steve.

STEVE LIESMAN: Carl, good morning. I’m stay from the Federal Reserve Financial institution of New York with Federal Reserve Financial institution President John Williams. President Williams, thanks for becoming a member of us.

JOHN WILLIAMS: It’s nice to be right here with you. And welcome to the New York Fed.

STEVE LIESMAN: Thanks. The market appears to be signaling that there’s a extreme slowdown coming. Bond yields are down. Shares are significantly off the place they have been. The Federal Reserve raised charges, although, this previous Wednesday, signaling further charges. Is it your rivalry within the consensus forecast and your forecast that the market has the outlook incorrect right here?

JOHN WILLIAMS: No, I don’t view this as about one aspect having it proper or mistaken. I feel what we’re – the actually necessary message is the financial system is robust, that’s why we’re seeing power going into the New Yr and we anticipate a wholesome financial system stepping into 2019 and that’s our baseline expectation. Nevertheless, we’re listening very rigorously to what’s occurring in markets for 2 causes. One is monetary circumstances have necessary affect on the financial outlook, and we take that under consideration and assume critically about that. Second I feel we’re listening to one thing necessary from markets and that may be a concern round dangers to the financial system and a possible slowdown additional than we presently anticipate in our base case. So we pay attention rigorously to that. We attempt to do our greatest to soak up that info and assume onerous about what are the varied dangers to the outlook in addition to the bottom case, which is absolutely one in every of wholesome and powerful progress. I’d like to only reiterate one thing that’s necessary about this dialog, is that we’re shifting to this extra knowledge dependent mode of — Chairman Powell, I and others have highlights the truth that as we transfer away from this specific ahead steerage, that we’re going to be far more pushed by the info in interested by the financial outlook and about our coverage selections. And for some individuals assume they knowledge means wanting on the arduous knowledge, just like the GDP knowledge that got here out or CPI knowledge. However for us, knowledge dependence means not solely the financial knowledge like that, however surveys of households and companies that we and others conduct. It means listening and speaking to individuals in monetary markets, understanding what that’s telling us each right here and overseas. And eventually, one of many strengths of the Federal Reserve System is we’ve got the 12 Federal Reserve banks. We as presidents speak repeatedly to individuals in companies who’re telling us what’s happening in — as we speak and the way they’re seeing issues going ahead.

STEVE LIESMAN: However inform me, should you’re listening to the message from the market, I assume the query is: are you listening? Within the sense that you simply that you simply went forward and raised charges on Wednesday. How do you justify that in case you are certainly listening to the market? And buyers who’re placing the cash on the road have determined that, “A) There’s not much inflation concern in my purchases of fixed income bonds. I’m looking for safety in fixed income. I’m going away from stocks. I don’t see the robust economy you guys do.” How will do you justify the speed improve if certainly you’re listening to the message of the market?

JOHN WILLIAMS: Properly, we’re listening however we’re additionally wanting rigorously on the knowledge and in addition speaking to enterprise and different leaders within the communities across the nation, and making an attempt to include that info collectively to get a view of the financial system. So proper now, as I stated, we now have a robust financial system. We have about three% progress this yr, is what we anticipate. Unemployment is close to 50-year lows and once more, we anticipate this financial system, though having considerably slower progress subsequent yr however nonetheless very strong progress and good strong job features. However importantly we’re listening to the — there are dangers about outlook. There’s clearly some considerations that perhaps the financial system will sluggish additional. And we’re sitting there – not sitting there considering what we truly know for positive what’s going to occur. What we’re going to be doing coming into subsequent yr and thru subsequent yr is reassessing our views of the financial system, listening to not solely markets however everyone that we talked to, take a look at the info and be able to reassess and re-evaluate our views and clearly reassess and re-evaluate our coverage stance.

STEVE LIESMAN: However John, after saying that you simply have been contemplating — not offering additional steerage, the assertion nonetheless says “some further rate hikes,” so how knowledge dependent are you actually, in case your assertion already tells us you’re nonetheless going up?

JOHN WILLIAMS: Nicely, I might make a pair feedback about that. To begin with, we made some modifications — essential modifications to our assertion round that. One is we modified the phrase from “expects further gradual increases” to “judges.” Now when you look it up within the dictionary, judges means – is, you realize, we’ve made an opinion. It’s our judgment or opinion. That’s the place we see issues going. This isn’t a dedication or promise or in any method a way that we all know for positive that’s what we’re going to do. We are literally saying fairly clearly that is how we see it now based mostly on our constructive fairly optimistic view of the financial system and we’ll change that as wanted. We additionally put the phrase “some” in entrance of “gradual increase” which is indicating that though we don’t assume we’re achieved elevating charges, we’ve made lots progress in getting rates of interest again to regular. Lastly we did add the sentence, which I feel is basically essential, is that ‘the committee is monitoring and continues to monitor global economic and financial market developments and their impact – potential impact on the economic outlook.’ So once we add a sentence like that, that’s not simply — that has which means, it’s indicating to everyone that we’re very targeted on that and really attuned to the likelihood that this outlook might change in coming months and we’re going to be very targeted on learning that and open to reassessing our views.

STEVE LIESMAN: You’ve been a Federal Reserve Financial institution President earlier than – you have been in San Francisco and now you’ve been within the Federal Reserve system for a very long time. Are you able to keep in mind a time when the market a lot thought one factor and the Fed appears to be – to assume one other factor? And are you frightened a few market and a Fed when it comes to their outlook which are so on totally different pages right here?

JOHN WILLIAMS: Properly, you realize, I feel you need to watch out once you say “the market” as a result of clearly we comply with a tons markets, we have now the inventory market, bond market, foreign money markets, plenty of different markets around the globe. And so —

STEVE LIESMAN: If it have been a Christmas hymnal they’d all be singing from the identical e-book, it might appear.

JOHN WILLIAMS: — however I feel there are lots of elements affecting the markets in the previous few months past the simply the economics — the specifics of financial coverage of the financial outlook. Clearly considerations about international progress in China. We hear from enterprise leaders fairly a bit considerations round tariff and commerce negotiations. So there’s a – I might say a variety of elements which might be contributing to volatility and market strikes. However our job is to rigorously assess what we’re studying from the markets from all the opposite info and are available to our greatest judgment. When it comes to this disconnect, I feel the necessary factor is, is we’re prepared and I feel we’ve confirmed through the years, that once we see modifications within the financial outlook, we’re able to reassess that view and clearly we’re able to shift our view on financial coverage to huge obtain our objectives of most employment and worth stability. And that’s what we’re going to do.

STEVE LIESMAN: One of many issues that many individuals out there complained about was a remark by Federal Reserve Chairman Jay Powell that the Federal Reserve’s stability sheet discount deliberate to be lowered this yr – or, sorry, in 2019 — by $600 billion is on autopilot. Is that correct that there’s no change in any respect, sort of regardless of principally what occurs to the financial system? That until you’re in a state of affairs the place you get to — that is what Janet Yellen stated to me in 2017, until you get to a zero fee on the Fed funds, you’re not going to change the stability sheet discount plan.

JOHN WILLIAMS: Properly, I feel you do have to take a step again. I feel Chairman Powell was actually considering or referring to the baseline forecast. Once more, of a robust financial system, a wholesome financial system, and in that we’ve began the stability sheet normalization a bit of over a yr in the past. That’s gone very easily thus far. And assuming the financial system continues to be robust, we proceed to see robust job progress then the plan can be to remain on the trail we’re on. And I need to reinforce some extent that we made in June of 2017 once we laid out the rules of our normalization and we inform you it has been repeated by Chairman Powell and others since then. And that’s our baseline view and we do view that the actions within the federal funds fee is our main instrument to regulate financial coverage on this baseline outlook. However we additionally highlighted two different issues which are essential. First, is that if there’s a cloth deterioration within the financial outlook, clearly we’ll rethink our path for the brief time period rate of interest and would modify coverage to greatest obtain our objectives. However we additionally stated that we might rethink the stability sheet normalization and should even finish that course of if that’s the — if that’s applicable to realize our objectives. And eventually, we stated in that assertion in June of 2017 that if the financial state of affairs requires it, if it deteriorates to this extent, in fact we might use all obtainable instruments to realize our objectives of most employment and worth stability. So we did make all of those three factors clear. And I simply need to reiterate these for at present.

STEVE LIESMAN: Truthful sufficient. Are we at that time now the place you’re reconsidering the present plan to scale back the stability sheet by $600 billion?

JOHN WILLIAMS: So clearly the committee simply met. We didn’t decide to vary the stability sheet normalization proper now. However as I stated, we’re going to enter the New Yr with eyes vast open, prepared to learn the info, take heed to what we’re listening to, reassess our financial outlook and take the best coverage selections that may hold this financial system robust, hold the enlargement going and hold inflation close to 2%.

STEVE LIESMAN: Yeah, however I’ve to press you on that query. Are you at some extent the place you assume the plan as laid out to the markets to scale back the stability sheet must be reconsidered?

JOHN WILLIAMS: Not at this level. I feel the financial outlook once more could be very robust. And I’m personally of the view that we’re on the appropriate path. I clearly strongly supported a fee hike at a current assembly, and I don’t see the necessity as we speak to vary our stability sheet normalization.

STEVE LIESMAN: Good, let’s step again. And I need to do — take a look at that as a result of I didn’t get an opportunity to ask your common outlook for 2019. What’s the financial system appear to be? What’s the trail of progress? What occurs to inflation unemployment?

JOHN WILLIAMS: Positive. And you recognize, my views, I feel, are fairly in line with lots of my colleagues on the committee. I anticipate financial progress after coming slightly above three% to sluggish considerably to about 2% to 2.5% subsequent yr. A part of that is what we have been anticipating all alongside because the financial system type of acquired an enormous increase this yr from fiscal stimulus and another elements to see progress sluggish considerably. However, once more, slowing to a tempo is actually nonetheless nicely above development, a tempo meaning robust job positive aspects and a tempo meaning unemployment coming right down to round three.5% subsequent yr. Once more, in our lifetimes this is among the lowest unemployment charges that we’ve seen. I additionally anticipate inflation to round 2% subsequent yr. Proper now it’s operating, I see, at 1.9% and so —

STEVE LIESMAN: Core BCE as reported by Rick earlier. Yeah.

JOHN WILLIAMS: Proper. And in order that’s, I feel, very constant. I imply, that is once more the baseline forecast. It’s a forecast the place we’re within the 10th yr of enlargement. If issues go as deliberate, we’re going to have the longest enlargement within the historical past of the financial system.

STEVE LIESMAN: Because you stated you’re on the consensus, is it proper to assume that in that state of affairs you now see if these numbers come to fruition two fee hikes in that context?

JOHN WILLIAMS: So, once more, that may — you return to this projection and viewing, you understand, that is based mostly on my view of the place the financial system is now, and issues can change, clearly, between now and over subsequent yr. However my view is that some – say one thing like two fee will increase would make sense within the context of a very robust financial system shifting ahead. However we’re knowledge dependent. We’re going to regulate our views, as we’ve executed through the years, relying on how the outlook modifications.

STEVE LIESMAN: So I feel it’s value having a dialog of what’s robust. Proper? We’re going to do north of three% and the consensus forecast for the Fed is right down to 2.three%. That looks like a weakening financial system to me.

JOHN WILLIAMS: Properly, it’s not weakening financial system. It’s clearly a rising financial system. It’s an financial system the place I see job progress fairly robust. I imply let’s keep in mind, we’ve added over 2.25 million jobs this yr already. We’ve added about 20 million jobs throughout this enlargement so that is an financial system that has generated monumental job progress, actually fairly strong actual wage positive factors for staff, strong revenue positive factors for the financial system. And that’s persevering with into subsequent yr. So it’s true, we’re not going to anticipate — I don’t anticipate three% progress subsequent yr nevertheless it’s nonetheless above development progress, strong job achieve and strong actual wage good points.

STEVE LIESMAN: John, it sounds to me the best way you lay out and speak concerning the financial system, you assume the market has overdone right here it on the pessimism. Are you stunned at how from an all-time excessive October three, how extremely the market has turned to now have this amazingly pessimistic views? Do you assume it’s improper?

JOHN WILLIAMS: Properly, you recognize, I speak to individuals in markets and we speak to individuals in markets fairly a bit. And I feel, you already know, there are in fact these occasions when there’s disagreements about the place the financial system goes. What I sense shouldn’t be a lot a elementary distinction about is progress going to be 2% or 2.5%. I feel there’s extra speak about considerations about draw back danger – issues that would flawed and whether or not it’s round, you already know, nation — the worldwide financial state of affairs or issues like that. So I, you already know, we’re very attuned to draw back danger. Perhaps we emphasize quite a bit, our modal forecast, type of the place we anticipate the financial system to go. However I feel the markets are telling us one thing fairly clearly, that there are these draw back dangers that we must be attuned to and watchful for. So I feel it’s not a lot one aspect being proper or fallacious, it’s simply I feel markets are very attuned to what might go fallacious. And naturally, we have to be so, as nicely.

STEVE LIESMAN: We ought to speak just a little bit about these dangers. How involved are you about what you’ve seen within the international financial numbers. How does that have an effect on the U.S?

JOHN WILLIAMS: Yeah, so I need to roll again a few yr in the past. As a result of I feel that’s truly useful right here. I feel in case you requested me, you recognize, final November or December, I might have anticipated just about development like progress within the international financial system in 2018 / 2019. What we then noticed – so it was some fairly good knowledge early on within the yr. And I feel all of us, truthfully, and the market members too, sort of received fairly optimistic. “Hey, we’re seeing this synchronized global growth. The U.S. economy is doing well. The global economy is doing well.” Properly, in the long run, the info type of contradicted that narrative and we’ve seen, you recognize, a retrenchment of the view of worldwide progress. However actually extra to only a type of extra of a development like progress like we have been anticipating say a yr in the past. And so I view a few of these swings in sentiment actually was, perhaps individuals received extra optimistic earlier within the yr across the progress.

STEVE LIESMAN: Too optimistic.

JOHN WILLIAMS: Nicely, in the long run the top too optimistic. And now individuals are getting extra real looking.

STEVE LIESMAN: However simply getting again to it, John, a number of massive European nations have printed damaging prints on GDP, proper? And a number of the rising markets appear to be they’re in some hassle right here. That’s the type of factor that may wash on U.S. shores right here, proper?

JOHN WILLIAMS: Completely. And that’s the reason we once more emphasised in our assertion that we’re monitoring this very rigorously. And a few of the points in Europe are actually round specific points round auto manufacturing, round some regulatory modifications and issues. So we take a look at the info very, very rigorously. However I agree there’s been a considerably slower outlook for international progress, we’ve included that in our personal assessments. And clearly taking a look at that as being a priority for a possible danger to —

STEVE LIESMAN: How about commerce, John? How do you incorporate what’s going with the commerce wars between the U.S. and China and all over the world? Is that a constructive for progress? Is it a damaging for–

JOHN WILLIAMS: That is the place I feel speaking to enterprise individuals and other people within the markets could be very useful as a result of they’re coping with this. And whenever you speak to people who find themselves affected by tariffs or different points, you actually type of see the way it impacts them. And clearly for some sectors of our financial system this has been a destructive and others perhaps a constructive. General up to now we haven’t seen you recognize, huge direct results of the tariffs however I do assume there’s a tone of uncertainty within the enterprise group. And the tone of unsure within the markets that we’re listening to about is considerations, “Well, what happens if this gets worse? What does that mean for the economy?” And that is likely one of the dangers to financial progress and probably a danger upside to inflation.

STEVE LIESMAN: Might further tariffs by the U.S. on China maintain the Federal Reserve from climbing subsequent yr?

JOHN WILLIAMS: Properly, you realize, I’m going to reply this query I feel how I reply any query like that. We take all this info collectively, take the items, put it collectively, we talk about it, attempt to get our greatest view of the place the outlook is, the place the dangers are after which come to a judgment about coverage.

STEVE LIESMAN: So let me deliver up a subject you need to speak about, which is the President’s feedback on the Federal Reserve. There’s some hypothesis on the market, I feel the “Wall Street Journal” editorial web page speculated about this, that it was the President’s feedback that partially pushed you guys to boost charges on Wednesday.

JOHN WILLIAMS: That’s — I completely disagree with that viewpoint. To start with, as you realize, I’ve been within the Federal Reserve almost 1 / 4 century. We are the – we’re as non-political, non-partisan group of individuals you will get collectively in Washington, D.C. We are targeted on the info, the evaluation, coming to the most effective selections we will. You understand, the concept we’d increase charges three or 4 occasions is an concept that has been on the market for an extended. The info this yr has been robust. Growth has been robust, job progress as I stated has been actually robust this yr, and inflation has moved near our 2% objective. I feel within the context of these financial developments, having our price hike determination a current assembly was absolutely justified and utterly made sense. It has nothing to do with outdoors commentary, whether or not we should always or shouldn’t do this. I guarantee you on the Federal Reserve we get loads of opinions expressed from numerous totally different teams about what we ought to be doing and we hear these opinions however truthfully we’re targeted on how one can greatest obtain our aim. We need a robust financial system.

STEVE LIESMAN: Would you favor the President not be making feedback on the Fed and what it should do with rates of interest?

JOHN WILLIAMS: You already know, I’m not going to opine on who ought to or shouldn’t discuss this as a result of to me it’s – you understand, we’re so targeted on doing our jobs and doing what we expect is greatest for the American individuals.

STEVE LIESMAN: You’re in a really particular place right here on the New York Federal Reserve Financial institution, as a result of one of many belongings you do is monitor markets and you’ve got this important markets desk there. Stroll me by means of the way you react once you see issues just like the Dow plunging 500 factors within the wake of the Federal Reserve elevating rates of interest. Do you hit the — your head together with your palm and say, “We messed up”? How do you react to that?

JOHN WILLIAMS: No, I don’t do this. I imply I feel that clearly we have now a tremendous workforce of people that not solely monitor monetary markets rigorously however we’re speaking to individuals each day and asking individuals “Hey, what’s going on?” And you recognize, I and my colleagues are in common contact with market individuals to attempt to perceive the considering, the psychology if you’ll of market reactions. I additionally assume that that is you realize, a reminder to me and I feel my colleagues that communication is simply actually essential for us. We must be —

STEVE LIESMAN: My colleague Jim Cramer believes you’re not listening to enterprise, that for those who have been listening to enterprise and following enterprise you A) wouldn’t have hiked this previous Wednesday and would have actually introduced down your outlook for rates of interest and doubtless financial progress subsequent yr.

JOHN WILLIAMS: Properly, you recognize, we did have a really, excellent dialogue round all the knowledge we’re listening to, together with the market modifications. We did regulate our path for the place we noticed financial progress and inflation over the subsequent few years. We did do clearly a big shift in our view of the coverage path going ahead over the subsequent few years. So I feel that we did change our views. I need to make clear one thing. I imply, you say as you and others have famous we solely lowered our forecast for progress by zero.2 for 2019 however that’s within the context of a a lot shallower path for the Federal Funds Fee. So I feel that the fitting context is we see a change within the financial outlook. We then regulate the trail for coverage and that considerably offsets what was the tidying of monetary circumstances and a few the worldwide slowdowns. So I feel what we’re doing is strictly what we ought to be doing is we’re altering our views within the financial system as the knowledge is available in and we’re altering our outlook for coverage to do our greatest to offset the modifications within the outlook.

STEVE LIESMAN: John, you’ve been very beneficiant together with your time and there’s not even a little bit of perspiration in your brow. I’m pretty impressed by that. I do have this query for you, although. Do you assume the Fed must get to – nicely, I ought to give background — no one has completed extra educational work on the idea of impartial than you, and doubtless no one’s analysis papers are extra cited than yours on this, so if there’s an skilled on impartial it’s you, if it’s attainable to be skilled on this unsure idea. Does the Federal Reserve have to get to impartial? And will do it so subsequent yr and what’s impartial in your thoughts?

JOHN WILLIAMS: Nicely, as Chairman Powell stated and it’s completely proper, we’re now principally on the backside finish of the vary of impartial rates of interest when it comes to you already know, our greatest estimates. There’s rather a lot uncertainty about that. Truthfully, regardless of having spent a lot of my life targeted on the impartial fee, I feel we should always focus rather more on the place is the financial system going? How can we get coverage to realize our objectives? We need a robust financial system, we would like this enlargement to proceed on a sustainable foundation, we would like inflation close to 2%. Impartial price is a part of that. I feel the larger half is absolutely taking all the opposite info under consideration to get to the fitting selections.

STEVE LIESMAN: Federal Reserve Financial institution President John Williams, a half an hour Christmas time chat, perhaps it is going to be a practice. Thanks for becoming a member of us.

JOHN WILLIAMS: Completely satisfied holidays.

STEVE LIESMAN: Joyful holidays to you. Carl, David, again to you Sara.