Williams says Fed policy in good position, sees inflation moderating in 2026
JERSEY CITY, New Jersey, Dec 15 (Reuters) – New York Federal Reserve President John Williams said on Monday that the U.S. central bank’s rate cut last week left the bank in a good position to deal with what’s to come, adding that he sees inflation slowing due to a cooling in the labor market.
“Monetary policy is in a good position as we head into 2026,” Williams said at an event hosted by the New Jersey Bankers Association in Jersey City. With the latest easing, the rate-setting Federal Open Market Committee “returned the moderately restrictive stance of monetary policy to neutral.”
Williams said it was “imperative” to bring inflation down to 2 percent without creating “undue risk” to the labor market. “My assessment is that as the labor market cools in recent months, downside risks to employment have increased, while upside risks to inflation have decreased somewhat.”
Williams’ comments were his first public comments since the Fed cut its benchmark overnight interest rate by a quarter point to a range of 3.50%-3.75% on Dec. 10, in an effort to offset rising risks to the labor market with inflation levels that remain problematically above the 2% target.
Fed Chairman Jerome Powell told reporters at the post-meeting news conference that it’s unclear what the future holds for monetary policy, leaving it unclear whether the central bank will cut interest rates again at its next meeting in late January.
‘THE LABOR MARKET IS CLEARLY COOLING’
Williams said he was more optimistic about U.S. economic growth next year as uncertainty eased and inflation pressures moderated. He stated that the tariffs did not affect prices as much as he expected, adding that import duties lead to one-time price increases that do not translate into permanent gains in price pressures.
He said the tariff impact on price pressures “will be fully realized in 2026” and inflation will fall to 2.5% next year and 2% in 2027.
He also said he sees the unemployment rate rising to 4.5% this year, but with a forecast of 2.25% growth next year, “I expect the unemployment rate to gradually decline over the next few years.”
“The labor market is clearly cooling; I must emphasize that this is an ongoing, gradual process, without a sharp increase in layoffs or other signs of rapid deterioration,” Williams said.
The Fed also announced at the end of last week’s policy meeting what it calls reserve management – asset purchasing – the purchase of Treasury bills to rebuild financial sector liquidity to ensure the central bank keeps a tight grip on its interest rate target. While the Fed has characterized the purchases as purely technical in nature, some observers see it as a form of stimulus.
