Axios recently sat down with Federal Reserve Bank of New York President John Williams for an exclusive interview on the economy.

The big picture: In a 40-minute conversation, Williams suggested the Fed's 2024 plan — to move cautiously and deliberately toward interest rate cuts, and gradually wind down its policy of shrinking its balance sheet — is very much intact.

Driving the news: Uncomfortably hot January inflation and job growth numbers have gotten the attention of Wall Street, and pushed back expectations about when rate cuts may arrive — and even prompted murmurs about the possibility of another rate hike.

• Williams' comments to us, paired with other official comments this week, suggest a more "steady-as-she-goes" approach.

What he's saying: "My overall view of the economy basically hasn't changed based on one month of data," Williams said. He and his colleagues have expected inflation to move up and down month to month, after all. "It can be a little bit bumpy on the way."

• As for what it will take for rate cut relief to come, Williams said that "things are moving [in] the right direction."
• "At some point, I think it will be appropriate to pull back on restrictive monetary policy, likely later this year. But it's really about reading that data and looking for consistent signs that inflation is not only coming down but is moving towards that 2% longer-run goal," he said.
• "I don't think there's any formula, or one indicator, or something that will tell you that. It's really looking at all the information together, including these signs in the labor market and others and extracting the signal."

We asked what it might take to change those plans and put rate hikes back on the table. "Rate hikes are not my base case," he said.

• "But clearly, if fundamentally the economic outlook changes in a material, significant way — either with inflation not showing signs of moving toward the 2% longer-run goal on a sustained basis or other indicators that monetary policy is not having the needed or desired effects in order to achieve that goal — then you have to rethink that."

Flashback: Minutes of the last Fed policy meeting, released Wednesday, noted signs that many financial assets are very expensive right now based on historical valuations. We asked Williams about it.

• He said that he and his colleagues track prices of stocks, bonds, and real estate, and "if you look at a broad set of those indicators — fundamentals, the price-to-rent ratio, price-to-dividend ratio — those kinds of things are quite elevated in many of those markets."
• But he sees a low risk of high housing prices causing the kinds of financial disruptions experienced in 2008.

Moreover, an uptick in auto and credit card delinquency rates noted in recent New York Fed data is one reason to think consumer spending growth will moderate, Williams said.

• "I think the fact that we're seeing some of these delinquencies and other issues show that households or at least some households are facing some challenges," he said, "which is one of the reasons why I expect consumer spending growth to slow this year."

State of play: Williams seemed skeptical that supply-side improvements that drove blockbuster U.S. growth last year will continue.

• "2023 was an incredible, incredible supply-side story," Williams said, with a surging labor force and supply chains repairing. "I think that if we could have another great year of supply, both on productivity and labor supply, that would be terrific."
• "But my own assessment is a good, significant part of what we saw on the supply side was really more of a renormalization of some of the factors that had brought productivity down earlier during the pandemic and the recovery from the pandemic."

Between the lines: There is a live debate over whether the so-called neutral interest rate — rates that neither stimulate nor slow the economy, also known as r-star — has moved higher in the wake of the pandemic, due to high fiscal deficits and other structural forces.

• Williams — who has published leading economic papers on the topic — is skeptical. While high fiscal deficits may push it higher, demographic and other factors are simultaneously pushing it lower.
• Right now, he said, "I think the big drivers seem to basically be consistent with pre-pandemic trends."

We (jokingly) asked Williams what is favorite onion dish is — a nod to a metaphor he has used repeatedly comparing inflation dynamics to the layers of an onion. You can read his full answer on why he likes the metaphor so much in the transcript.

• But he also answered "quiche."

For a full transcript of the interview with Williams, including discussion of the Fed's balance sheet, AI and more, click here.