The Federal Reserve is still on track for more interest rate cuts should inflation pressures moderate, New York Federal Reserve President John Williams said Tuesday.
Williams said he expects that moderation to occur.
“Monetary policy is currently well positioned to support the stabilization of the labor market and return inflation to our 2% goal,” Williams said in the text of a speech delivered to a conference hosted by America’s Credit Unions in Washington and reported by Reuters.
The remarks did not address the impact of the Iran conflict on the economy.
“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.
The Fed official spoke amid volatility on global markets tied to the U.S. and Israeli military attacks on Iran. So far, the war has driven up energy prices, which could in turn add upward pressure to inflation levels that are already above the Fed’s 2% target, Reuters noted.
Markets, worried about the outlook for pricing pressure driven by the war, are moving to price out what had been prospects of more Fed rate cuts this year, Reuters reported.
Last year, the Fed cut its benchmark interest rate by three-quarters of a percentage point to the 3.50%-3.75% range, as it sought to give support to a weakening job market while still keeping enough restraint on the economy to guide inflation back to its target, Reuters reported.
Fading Inflation Pressures
Fed officials have been eyeing more cuts this year on expectations that inflation pressures would fade, but the war is now clouding that outlook.
Williams stated the U.S. economy is on a solid footing and should grow by 2.5% this year, “supported by stimulus from fiscal policy, favorable financial conditions, and robust investments in artificial intelligence.”
The New York Fed official said the job market, which is in a low-hire, low-fire environment, has stabilized and he expects the unemployment rate to edge lower this year and in 2027.
He said that tariffs have been a prominent driver of inflation this year, but that influence should wane heading into the middle of this year.
Williams noted that the impact of the U.S. import tariffs is “overwhelmingly” shouldered by persons and businesses in the United States, and not by foreign producers.
Recent New York Fed research made that point, but it drew heated criticism from the Trump administration.
