Williams Sees Time to Weigh Data Before Next Move
John Williams, who heads the Federal Reserve Bank of New York, told an audience on Tuesday that policymakers can afford to wait and study incoming economic figures before settling on the timing of another rate increase, though he expects one more move before the year is out. Speaking at the University at Buffalo in Buffalo, New York, he explained that the steps taken at the September gathering removed any pressure to act quickly, and that reviewing fresh data first ought to sharpen the picture of how the economy is faring.[S1]
Williams indicated that should the economy track closely with what he anticipates, a further quarter-point-style lift of the federal funds target range could be warranted toward the end of the year, which would help inflation return to target sooner. He stressed this was merely his own projection, with the passage of time and the full set of data ultimately deciding. His comments landed as markets assumed the Fed would keep tightening after September's quarter-percentage-point increase, which set the overnight target range at 3.75% to 4%.[S1]
Before Williams spoke, futures trading implied a solid likelihood of a rate increase at the Fed's October 27-28 policy gathering, a prospect he seemed to temper. Following his comments, traders trimmed those wagers to roughly a coin flip. Williams argued that with solid economic expansion and a steady labor market, inflation can now take center stage in policy decisions. He called it essential to bring inflation durably back to the 2% goal, requiring the Fed to prevent harmful price shocks from taking hold and to keep secondary inflation effects contained.[S1]
Inflation Outlook and Risks
The central bank is lifting borrowing costs in response to price pressures that have exceeded its 2% objective for more than five years. Those pressures intensified during the year because of President Donald Trump's tariffs on trade and sharp rises in energy costs linked to the conflict in the Middle East. Officials at the Fed are growing more concerned that inflation will not return to target soon enough and that steps are needed so the public does not come to treat persistently elevated inflation as the norm.[S1]
Williams observed that spending on artificial intelligence is likewise adding to price pressures, while noting that tariff-driven pressures have mostly subsided provided the president refrains from imposing new import taxes. He projects inflation finishing the year near 3.5%, then easing next year as it moves toward the target by 2028. He added that absent a major change in the Middle East conflict, and given considerable uncertainty there, oil prices are unlikely to double or climb sharply again, so that inflation impulse should fade much as the tariff impulse did, allowing inflation to decline.[S1]
Speaking with reporters afterward, Williams rejected the idea that rising long-term government bond yields reflect investors shifting toward expecting higher inflation, though he acknowledged that at the margin those higher yields are tightening financial conditions. In his prepared remarks he also projected growth of 2.25% this year, pointing to immigration trends, an aging workforce and only modest productivity gains as factors capping how fast the economy can expand. He further forecast the unemployment rate reaching 4% next year.[S1]
