Good morning, everyone. It’s an honor to stand before you today at the renowned Liberty Science Center, home to the largest planetarium in the Western Hemisphere. As the Federal Reserve Bank of New York representative, I’m here to shed light on the U.S. economy and the Federal Reserve's efforts to achieve its dual mandate of maximum employment and price stability. But first, let's address the elephant in the room: the year 2025 was a rollercoaster ride for the economy, and we're here to navigate through the twists and turns.
Uncertainty and Resilience
One word defines 2025: uncertainty. North Jersey, like the broader U.S. economy, faced its fair share of challenges, from the pandemic's impact to inflation and geopolitical uncertainties. Yet, amidst all the chaos, the U.S. economy demonstrated remarkable resilience, setting the stage for a promising 2026.
Price Stability: The Fed's Mission
Let's delve into the Fed's dual mandate, starting with price stability. The Federal Open Market Committee (FOMC) defines price stability as a 2% inflation rate over the long term. While we haven't had the usual data flow due to the government shutdown, we've been monitoring the economy through various indicators.
The data reveal that trade policies have contributed to inflation this year, but the effects have been more gradual than anticipated. Tariffs have temporarily stalled progress towards the FOMC's 2% inflation goal, with the latest reading at around 2.75%. However, there's no evidence of second-round effects or widespread supply chain bottlenecks. Inflation expectations remain well-anchored, as confirmed by the New York Fed's Survey of Consumer Expectations (SCE).
Employment: A Gradual Cooling
Now, let's shift to the employment side of the mandate. The labor market has been gradually cooling, with labor demand outpacing supply. Job growth has slowed, and the unemployment rate has steadily risen. This trend is evident in North Jersey, where employment has declined slightly since January. Survey-based measures indicate increasing slack in the labor market, with the Conference Board's consumer confidence survey and the National Federation of Independent Business's survey showing a decline in job availability.
Monetary Policy and the Road Ahead
To restore price stability, it's crucial to balance the risks. The FOMC has shifted monetary policy towards a neutral stance, lowering the federal funds rate target range by 0.25 percentage points to 3.5% to 3.75%. This decision reflects the evolving economic outlook and the need to maintain maximum employment.
Looking ahead, tariffs are expected to have a one-off price level effect in 2026, with inflation declining to just under 2.5% before reaching the FOMC's 2% goal in 2027. Real GDP growth is projected to be around 2.25% in 2026, fueled by fiscal policy, favorable financial conditions, and increased investments in artificial intelligence.
The Fed's Balance Sheet
Before concluding, let's briefly touch on the Fed's balance sheet. On December 1, the FOMC halted the reduction of Treasury securities and agency debt holdings, opting for reserve management purchases to maintain ample reserves. This step ensures effective interest rate control and stability in the financial system.
Conclusion: Navigating the Unpredictable
In conclusion, 2026 begins with resilience, and the economy is poised for solid growth and price stability. However, as we've seen in 2025, the road ahead may be unpredictable. My views on monetary policy will evolve based on the totality of the data, economic outlook, and risks to our goals. We must remain adaptable and ready to adjust our course as needed. Thank you for your time, and I look forward to your insights and comments.
