Federal Reserve Bank of New York President John Williams said Tuesday that interest-rate reductions will be justified if inflation slows further once most of the impact from tariffs has concluded. Williams delivered the remarks in prepared comments for an event in Washington.
He said that, assuming inflation moves along the course he expects, easing the federal funds rate would eventually be sensible to avoid monetary policy becoming more restrictive. Williams emphasized the conditional nature of any future cuts - they depend on inflation continuing to slow after tariff-related price effects wane.
On the timing and magnitude of tariff effects, Williams said levies should affect consumer prices primarily during the first half of the year. He forecast that inflation will decline to 2.5% by the end of 2026 and reach 2% in 2027. He characterized most of the tariff impact as one-off, adding that the peak effect of the levies should pass later this year.
Williams warned that, because the full force of tariffs has not yet been felt, progress toward achieving the Fed's 2% inflation goal has temporarily stalled. That assessment frames his view that policy may need to remain restrictive until there is clearer evidence inflation is on a sustained path down.
The New York Fed president also highlighted signs of stabilization in the labor market over recent months. He said the unemployment rate should continue to edge down this year and next, supported by solid growth, and he expects the economy to expand by around 2.5% this year.
Describing the current jobs environment, Williams used the phrase low-hire, low-fire to characterize a labor market with fewer large swings in hiring and separations. He noted that household surveys show a more pessimistic perception among consumers - a cautionary signal for policymakers to monitor as they weigh the outlook.
Williams' comments reflect a broader debate within the Fed. Several officials have pointed to stabilization in the labor market following a pickup in hiring in January and a decline in the unemployment rate. Many policymakers would prefer to wait for clearer signs that inflation is moving back toward the 2% target before easing policy. At the same time, some officials are concerned that the absence of widespread job creation could argue for additional rate cuts.
Williams framed possible future rate cuts as contingent on inflation progress and the passing of tariff effects, while underscoring ongoing uncertainties in labor-market sentiment and the timing of price changes tied to tariffs.