New York Fed's Williams sees one more rate rise but says there's no rush

The Federal Reserve’s September rate increase pointed towards tighter policy. Federal funds futures moved the other way after John Williams, the president and chief executive officer of the Federal Reserve Bank of New York, said at the University at Buffalo on 29 September that another increase could wait.

Fed officials had raised interest rates by a quarter percentage point in September, their first increase since 2023. Williams said: “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”.

He also signalled that there was time to assess the evidence after the September decision. “With the policy action we took at our September meeting, there is no need for urgency, and we have time to gather more information,” Williams said.

Following the speech, pricing in federal funds futures contracts put the probability of a rate increase at the Fed’s 27-28 October meeting at about 50%, down from 70%.

Williams is a permanent voting member and vice chair of the Federal Open Market Committee, the Fed body that sets interest rates at its policy meetings. He was long viewed as close to Jerome Powell, the former Federal Reserve chair.

In a wide-ranging Bloomberg News interview on 13 October, Williams repeated his view. “I haven't changed my view that it may be appropriate to have one more rate hike,” he said. He added: “I don't think at this time I have any reason to believe that we would need to do more” after one further increase this year.

The choice leaves the Fed weighing its effort to return inflation to its 2% target against the risks that higher borrowing costs could further slow the US economy. Williams projected inflation at 3.5% this year, slowing by 2027 to slightly above the Fed’s 2% target.

He said conflict in the Middle East and expanding investment linked to artificial intelligence were the main forces pushing inflation higher. Energy prices were continuing to add upward pressure to overall inflation, he cautioned. Yet he expects inflation to cool next year despite strong demand from the build-out of AI infrastructure, with overall inflation near the Fed’s 2% target for the year as a whole.

Williams also said tariffs “will be totally in the rearview mirror” among the factors bringing inflation down. He said the October meeting’s proximity to the midterm elections was “not at all” a consideration in rate decisions.

Analysts at Evercore ISI wrote that Williams had pushed back unambiguously against a back-to-back increase in October. “We read this as most consistent with skipping October and hiking in December,” they said.