New York Federal Reserve President John Williams stated on Monday that the Fed's recent rate cut has positioned it favorably to address future challenges. He added that inflation is expected to gradually decline as the labor market cools.
"Entering 2026, the stance of monetary policy is appropriate," Williams said during an event hosted by the New Jersey Bankers Association in Jersey City. "With the recent rate cut, the Federal Open Market Committee has adjusted its previously somewhat restrictive policy closer to a neutral level."
Williams emphasized the importance of bringing inflation back to the 2% target while avoiding "unnecessary risks" to the labor market. "My assessment is that in recent months, downside risks in employment have increased as the labor market cools, while upside risks to inflation have eased somewhat."
These remarks mark Williams' first public comments since the Fed's December 10 rate cut, which lowered the benchmark rate by 25 basis points to a range of 3.50%-3.75%. The move aimed to balance growing risks in the labor market against inflation still significantly above the 2% target.
Fed Chair Jerome Powell had previously noted uncertainty about future policy moves, leaving open the question of whether another rate cut would occur at the next meeting in late January.
Williams expressed greater optimism about U.S. economic growth next year as uncertainties fade and inflationary pressures ease. He noted that tariffs' impact on prices has not exceeded expectations and appears to be a one-time price increase rather than sustained inflationary pressure.
He projected that tariffs' full effect on inflation "will be fully realized by 2026," with inflation expected to fall to 2.5% next year and reach the 2% target by 2027.
Williams also forecast a slight rise in unemployment to 4.5% this year but predicted a gradual decline in subsequent years, aligning with his expectation of 2.25% economic growth next year.
"The labor market is clearly cooling, but I want to emphasize this is a gradual process with no signs of sharp job cuts or rapid economic deterioration," Williams said.
The Fed also announced plans for reserve management asset purchases—buying short-term Treasury securities to rebuild financial system liquidity and ensure control over interest rate targets. While the Fed described this as a technical measure, some observers view it as economic stimulus.
"To ensure effective interest rate control, the next natural step under the ample reserves framework is this asset purchase operation," Williams said, adding that banks are expected to actively use the Fed's standing repo facility when funding is needed.
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