NEW YORK (Reuters) - Federal Reserve Bank of New York President John Williams said Friday that a better balanced economy has opened the door to cutting rates, with the full course of action to be determined by how the economy performs.

"With the economy now in equipoise and inflation on a path to 2 percent, it is now appropriate to dial down the degree of restrictiveness in the stance of policy by reducing the target range for the federal funds rate," Williams said in the text of a speech prepared for delivery before a gathering held at the Council on Foreign Relations in New York.

"The stance of monetary policy can be moved to a more neutral setting over time depending on the evolution of the data, the outlook, and the risks to achieving our objectives," he said.

The central banker spoke immediately after the release of August jobs data. The movement of the jobless rate had been closely watched given its recent gradual drift upwards and unexpected July increase, which had raised fears that what had been a strong rate of hiring in the U.S. economy was running out of gas.

In his speech, Williams said the rise in the jobless rate largely represents a retreat from overheated conditions, and that it remains historically low. He said the jobless rate will likely end the year around 4.25% and then move back down to its longer run level of around 3.75%.

The state of the job market has loomed into greater prominence for the Fed in a climate where inflation pressures have been easing enough to open the door to rate cuts starting in September. At the end of August, Fed Chairman Jerome Powell said "the time has come for policy to adjust," adding "the direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks."

Over recent weeks, Fed officials have refrained from providing firm guidance over the size of the almost certain cut to come at the Federal Open Market Committee meeting scheduled for Sept. 17-18. Financial markets broadly expect around a quarter percentage point cut in what is now a 5.25% to 5.5% federal funds rate target, with more cuts coming after that.

A number of Fed officials have said they see a gradual path of easing but have been mum on what might happen at any given meeting. "I think a slow, methodical approach down is the right way to go," Philadelphia Fed leader Patrick Harker told Reuters on Aug. 22.

Williams also said in his speech that falling inflation pressures are likely to see inflation ease to a 2.25% rise this year and to just above 2% next year.