Federal Reserve Bank of New York President John Williams said the central bank has made “tremendous progress” toward better balance on its inflation and employment goals, but acknowledged policymakers are not yet done.

“The economy has come a long way toward achieving better balance and reaching our 2% inflation goal,” Williams said in prepared remarks Thursday at the Federal Home Loan Bank of New York Member Symposium. “But we have not seen the total alignment of our dual mandate quite yet.”

Williams reiterated he expects inflation to continue its gradual return to 2%, though anticipates “bumps along the way,” citing recent inflation data. He also pointed to signs of a more “normal” labor market, adding that he expects the unemployment rate to peak at 4% this year before moving gradually down.

Investors are signaling the central bank will cut interest rates just twice this year, starting in September, a turn of events that was unthinkable at the start of the year when markets saw roughly six cuts beginning in March.

Data out Wednesday showed a key inflation gauge exceeded economists’ expectations for a third-straight month. Consumer prices excluding food and energy climbed 0.4% from February and 3.8% from a year earlier, the same as the month prior.

Williams said the economic projections issued at the Fed’s March meeting “indicate that if the economy proceeds as expected, it will make sense to dial back the policy restraint gradually over time, starting this year.”

On the balance sheet, Williams said the committee’s decision to slow the pace of its reductions doesn’t indicate that the Fed will be stopping the runoff — a process known as quantitative tightening, or QT — any time soon. Rather, it allows officials to monitor market conditions and smoothly transition to an ample reserves regime.

Indicators suggest “the current level of reserves remains safely far above” the level consistent with ample, he said.

Policymakers generally favored slowing the pace at which they’re shrinking the central bank’s asset portfolio by roughly half, minutes from the March 19-20 gathering showed. 

This article was provided by Bloomberg News.