New York Federal Reserve President John Williams said another interest rate increase may be warranted this year but that there is no need to move quickly. Markets immediately pared back expectations for an October hike and shifted toward a hold.
Speaking at an event hosted by the University at Buffalo on the 29th, Williams said that if the economy moves broadly in line with his outlook, "it may be appropriate to raise the target range for the federal funds rate once more later this year," according to Bloomberg. He described the step as a way to bring inflation back to target more quickly.
He drew a line at moving immediately, however. "The policy action we took at the September meeting means there is no need to hurry, and it gives us time to gather more information," Williams said. The Fed raised its benchmark rate by 0.25 percentage point on the 17th, its first increase since 2023.
Immediately after his remarks, the probability of a hike at the Oct. 27-28 meeting priced into federal funds futures fell to about 50% from roughly 70%. Analysts at Evercore ISI said Williams had clearly put the brakes on back-to-back increases in October, adding that skipping October and raising rates in December now looks more likely.
As New York Fed president, Williams holds a permanent vote on the Federal Open Market Committee, the central bank's policy-setting body, and serves as its vice chair. He has long been seen as close to former Fed Chair Jerome Powell.
Williams pointed to the conflict in the Middle East and expanding investment tied to artificial intelligence as the main drivers of inflation. Tariffs, by contrast, are no longer pushing up goods prices, he said. "The inflationary effects of the AI-related demand shock are becoming increasingly evident, and I expect the impact of energy prices on inflation to be larger and longer-lasting than before," Williams said. He added that there is no evidence of broader, more persistent price pressures taking hold.
He projected inflation at 3.5% this year, slowing by 2027 to slightly above the Fed's 2% target. He also said the October meeting's proximity to the midterm elections was "not at all" a consideration.
Other Fed officials pressed the case for further increases the same day. St. Louis Fed President Alberto Musalem said in a London speech that monetary policy remains "somewhat accommodative" even after the September hike. Chicago Fed President Austan Goolsbee repeated his view that rates may need to rise in response to persistent supply shocks. Fed Governor Michael Barr said in remarks prepared for an event in Detroit that under the baseline scenario, additional policy adjustment is likely needed to return inflation to target in a timely manner.
