Odds of an October Federal Reserve rate hike fell Tuesday after New York Fed President John Williams signaled there was no urgency to raise rates again.
In a speech at the University at Buffalo on Tuesday, Williams signaled that one additional rate increase is his base case for the year, in line with the median forecast from policymakers in the latest Summary of Economic Projections.
"If the economy evolves in a manner broadly consistent with my forecast, one further upward adjustment of the federal funds target range may be appropriate late this year to support a timelier return of inflation to target," Williams said.
Odds of a quarter-percentage-point rate increase in October fell from 70.9% Monday to 49.3% on Tuesday afternoon, according to the CME FedWatch tool. Odds of two hikes by December also fell Tuesday, as did the two-year Treasury yield. There are only two more policy meetings scheduled for this year, one at the end of October and one in December.
Williams added that with the Federal Open Market Committee raising the fed funds rate to 3.75% to 4.00% at the September meeting, there was "no need for urgency."
Williams, a voting member of the FOMC and widely considered an important vote on the committee, said that he believed Fed officials had time to gather more information about inflation's trajectory.
Due to higher energy prices and the impact of AI demand on related goods prices, Williams forecast that overall inflation would come in at 3.5% by the end of this year. But as the effects of tariffs recede and energy prices normalize, he expects inflation to slow to just above 2% next year, reaching the Fed's 2% target by 2028. That's sooner than the 2029 return projected in September's median forecast.
But Williams said that outcome is far from certain-only time and the totality of the data will tell. Like many of his Fed colleagues, he emphasized that returning inflation to 2% is a top priority and that restrictive policy could limit upside risks to inflation.
"While monetary policy cannot move ships or reopen pipelines and refineries, it can diminish the risk that these supply shocks spill over into broader and more persistent inflation," Williams said.
Williams' remarks, similar to those he made last week, contrasted with the more hawkish tone of other Fed officials this week. Governor Michael Barr, for example, said on Tuesday that "further policy adjustments are likely to be needed," adding he does not yet see a "clear trend to a timely return to 2% inflation."
Chicago Fed President Austan Goolsbee, who previously noted that the Fed can no longer simply look through a series of shocks, said Tuesday that allowing inflation to remain above 2% for five and a half years amounts to "playing with fire."
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