Federal Reserve Bank of New York President John Williams stated on Monday that he anticipates a healthy economy in 2026 and sees no immediate reason to reduce interest rates. He made these remarks in a speech prepared for delivery at a Council on Foreign Relations gathering in New York.
Williams said the Federal Open Market Committee has moved monetary policy from a modestly restrictive stance closer to neutral. "Monetary policy is now well positioned to support the stabilization of the labor market and the return of inflation to the FOMC’s longer-run goal of 2 percent," he stated.
He emphasized the importance of bringing inflation back to the 2% target "without creating undue risks" to employment. Williams noted that in recent months, downside risks to employment have increased as the labor market cooled, while upside risks to inflation have lessened.
These comments mark Williams' first public statements of the year. The Fed is widely viewed as having entered a holding stage after cutting its short-term interest rate target by three-quarters of a percentage point last year, lowering the federal funds target rate range to between 3.5% and 3.75%.
That move to lower borrowing costs was driven by policymakers trying to balance a weakening job market against inflation that remains above the 2% target. At their December meeting, officials penciled in one more rate cut this year, expecting the job market to hold steady and inflation pressures to ease as the impact of erratically implemented trade tariffs wanes.
Recent job market data shows tepid job demand amid still-high inflation. In a December television interview after last month's policy meeting, Williams said he didn't see an urgent need to cut rates again. Other Fed officials have offered similar policy outlooks in recent days.
In his speech, Williams described his economic outlook as "quite favorable." He expects GDP for the year between 2.5% and 2.75%, with the unemployment rate stabilizing this year and retreating in following years. Regarding inflation, he said price pressures should peak at between 2.75% and 3% in the first half of this year before ebbing to 2.5% for the year as a whole, with inflation returning to 2% by 2027.
Williams' speech occurred amid an unprecedented attack on the central bank's independence. Late Sunday, Fed Chair Jerome Powell announced the institution had been served with grand jury subpoenas threatening criminal indictment related to cost overruns in renovations of the Fed's headquarters.
In a statement, Powell argued the legal moves were "pretexts" and said, "This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions—or whether instead monetary policy will be directed by political pressure or intimidation."
While the impact on financial markets has thus far not been as extreme as some feared, the threat of indictment appeared to generate significant bipartisan pushback in Congress. It raised the prospect of the president being unable to install any new members on the central bank board until he backs off legal attacks.