Fed’s Williams Says More Rate Cuts Hinge on Inflation Progress
Federal Reserve Bank of New York President John Williams said additional interest-rate cuts will be warranted if inflation slows further once most of the impact of tariffs has passed.
“If inflation follows the path I expect, further reductions in the federal funds rate will eventually be warranted to prevent monetary policy from inadvertently becoming more restrictive,” Williams said Tuesday in remarks prepared for an event in Washington.
Tariffs should have some additional impact on consumer prices during the first half of the year before the inflation rate declines to 2.5% at the end of 2026, and to 2% in 2027, he added.
At the same time, Williams said there’s been “promising signs of stabilization” in the labor market during recent months, and the unemployment rate should continue to edge down this year and next, helped by “solid” growth. He expects the economy will grow by around 2.5% this year.
“Given the lack of second-round effects and well-anchored inflation expectations, I expect the tariffs largely to have one-off effects on prices,” he said, adding that the peak effect of the levies will pass “later this year.”
Given the full impact of tariffs is yet to be felt, progress toward the Fed’s 2% inflation goal “has temporarily stalled.”
A growing chorus of Fed officials are pointing to signs of stabilization in the labor market following a pick-up in hiring in January and a drop in the unemployment rate. Many policymakers would now prefer to wait for further signs that inflation is falling back to the Fed’s 2% goal. A few other policymakers, however, worry the lack of widespread job creation could still warrant more rate cuts.
Williams said the job market remains in an “unusual low-hire, low-fire” dynamic. He also noted there’s a more pessimistic perception from households surveys, which provide a “cautionary signal” for policymakers to monitor.
Source : Bloomberg.com
