Summary:
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Williams says Fed policy now closer to neutral
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Inflation risks easing; job market downside risks rising
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US growth seen at 2.5%–2.75% in 2026
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Inflation expected to return to 2% in 2027
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No near-term urgency for further rate cuts
New York Fed President John Williams signalled a steady hand on policy, saying rates are near neutral and well positioned to guide inflation back to target without harming jobs.
Federal Reserve Bank of New York President John Williams said U.S. monetary policy is now “well positioned” to manage current economic risks, signalling no urgency to resume interest-rate cuts as the central bank moves closer to a neutral policy stance.
Speaking in prepared remarks to an event hosted by the Council on Foreign Relations on Monday, Williams said the Federal Open Market Committee has shifted policy from a modestly restrictive setting toward neutrality following rate cuts last year. He said this leaves the Fed well placed to stabilise the labour market while guiding inflation back to its 2% target.
Williams stressed that restoring price stability remains “imperative,” but said the balance of risks has shifted. Downside risks to employment have increased as the labour market cools, while upside inflation risks have eased. He said the Fed must lower inflation without creating undue damage to jobs, reinforcing a cautious, data-dependent policy stance.
The New York Fed chief described the economic outlook for 2026 as “quite favourable,” forecasting U.S. growth of between 2.5% and 2.75%. He expects the unemployment rate to stabilise this year before edging lower in subsequent years. On inflation, Williams said price pressures are likely to peak between 2.75% and 3% in the first half of 2026 before easing to around 2.5% for the year, with inflation returning to the 2% target in 2027.
Williams said inflation trends outside of tariffs are “mostly favourable” and argued that tariff-related price impacts should fade over time, though he acknowledged that the burden of tariff-driven inflation has largely been borne by U.S. consumers.
His comments reinforce the view that the Fed has entered a holding phase after cutting rates by 75 basis points last year, bringing the federal funds target range to 3.5%–3.75%. While policymakers pencilled in one further cut this year in December projections, Williams reiterated there is no near-term need for additional easing.
The remarks come amid heightened political pressure on the central bank, following comments from Fed Chair Jerome Powell that the Fed had received grand jury subpoenas related to a building renovation project — an episode Powell described as an attack on the Fed’s independence. Despite the noise, Williams’ message underscored continuity, caution, and data-driven policymaking.
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The next Federal Open Market Committee (FOMC) meeting is January 27-28. Hold expected
