Fed Williams remarks on inflation and US economy 🗽

John Williams from the Federal Reserve Bank of New York remarks on US economy, inflation and interest rates. 

• Treasury and funding markets have performed very well.

• The standing repo facility is ready to manage liquidity issues if needed.

• There is still a very high level of reserves in the financial system.

• Interest rates will eventually be lower than current levels.

• No abnormal moves are seen in the bond market.

• The bond market is currently focused on economic fundamentals.

• The bond market appears relatively calm.

The Fed must keep the economy on track and allow tariffs to pass through.

• Tariff impacts are expected to play out into the middle of next year.

• Base case: tariffs will remain in place, though other scenarios are considered.

• Tariffs are likely to add 1%–1.5% to inflation this year.

• So far, tariffs don’t appear to be creating long-term inflation pressures.

• Clear signs that tariffs are influencing prices and consumer buying patterns.

• Core goods inflation has shifted higher due to tariffs.

Other indicators show that the services economy is normalizing.

• The overall trend in services inflation has been favorable.

Concern that the job market could cool more than desirable.

• Downside risks to employment have clearly increased.

• Balance has shifted more toward the Fed’s employment mandate.

• 4.2% unemployment rate is relatively low, but risks to the labor market are rising.

• Job market turnover has cooled significantly.

• The labor market has been challenged by changes in immigrant labor supply.

• Labor market is still in a reasonably good place overall.

• Gradual cooling in the job market is expected.

• Labor market is moving back toward pre-pandemic trends.

• Labor market is currently in balance.

Consumers look a little shaky in soft survey data, but hard data does not show major weakness.

• Technology investment has been very strong.

• The supply side of the economy is shifting significantly.

Monitoring data closely for possible contraction in banking reserves.

• Always watching broader data trends, not just individual reports.

Inflation is expected to return to the Fed’s 2% target by 2027.

• PCE inflation forecast: 3.0%–3.25% for this year, 2.5% in 2026.

• The unemployment rate is expected to rise to about 4.5% next year.

• Trade and immigration factors are slowing economic activity.

• GDP is projected to grow between 1.25%–1.50% this year.