
On January 15th, after the unexpected slowdown in the core CPI growth in December in the United States, several senior Federal Reserve officials delivered speeches. They conveyed confidence in the gradual decline of inflation while pointing out the high uncertainty in economic prospects. The path of monetary policy will be data-driven.
Williams: Inflation on track to decrease, policy decisions data-driven
The New York Fed President Williams stated that inflation is gradually moving toward the Fed's 2% target. He emphasized that while the process of inflation decrease is "still on track," it hasn't yet reached the goal, and more time is needed in the future. He expects inflation to gradually decline over the next few years, with the US economy achieving approximately 2% growth by 2025 and maintaining an unemployment rate of 4%-4.25%.
Williams pointed out that future monetary policy formulation will be entirely dependent on economic data due to the high uncertainty in economic outlook. He specifically mentioned that potential changes in fiscal, trade, and regulatory policies by the Trump administration increase complexity. "Our monetary policy needs to be prepared for various risks in the face of potential policy changes."
He also mentioned that although consumers' expectations for short-term and medium-term inflation have slightly increased, they still remain within the normal range before the pandemic, indicating that overall inflation expectations are stable.
Barkin: Inflation approaching target, policy must remain restrictive
Richmond Fed President Barkin also believes that the latest CPI data indicate that inflation is steadily decreasing. Still, he emphasized that monetary policy needs to remain restrictive, especially at the crucial stage of achieving the inflation target's "last mile." He suggested that the Fed's pace of cutting interest rates might be more gradual.
Barkin noted that despite the recent rise in US Treasury yields, this mainly reflects the supply and demand conditions in the Treasury market, rather than a change in market expectations for the Fed's short-term policy path or inflation expectations. He emphasized that recent interest rate changes will not affect the Fed's policy path.
The challenging process of inflation decline
Both officials acknowledged the increasing uncertainty facing the US economy, particularly concerning potential tariff and immigration policies by the Trump administration. These policies could have complex effects on inflation, requiring the Fed to gather more data to guide policy decisions.
Williams stated that the future process of inflation easing might be "quite bumpy," but the Fed is capable of balancing goal risks and gradually achieving policy targets. He also mentioned that the Fed's balance sheet reduction is "proceeding smoothly," with a manageable impact on the economic environment.
Summary: Data-driven policy path
Following the release of the latest CPI data, Fed officials remain cautiously optimistic about future inflation decline but emphasize that policy decisions will be driven by economic data rather than predictions of long-term trends. As future economic policy uncertainty increases, the market will closely watch the Fed's next steps.

