New York Federal Reserve Bank President John Williams. — Reuters
NEW YORK: Federal Reserve (Fed) Bank of New York president John Williams says he expects a healthy economy in 2026 and indicated he sees no near-term reason to cut interest rates.
The interest-rate-setting Federal Open Market Committee (FOMC) “has moved the modestly restrictive stance of monetary policy closer to neutral,” Williams said in a speech delivered before a gathering held by the Council on Foreign Relations in New York.
“Monetary policy is now well positioned to support the stabilisation of the labour market and the return of inflation to the FOMC’s longer-run goal of 2%,” he said.
Williams said that it was critical for the Fed to get inflation back to the 2% target “without creating undue risks” to the job market. He added, “In recent months, the downside risks to employment have increased as the labour market cooled, while the upside risks to inflation have lessened.”
Williams’ comments Monday were his first of the year. The Fed is widely viewed as having moved into a holding stage after cutting its short-term interest rate target three-quarters of a percentage point last year, lowering its federal funds target rate range to between 3.5% and 3.75%.
The move to lower short-term borrowing costs was driven by policymakers trying to balance a weakening job market against inflation that still remains above the 2% target.
At the December meeting, officials penciled in one more rate cut this year amid expectations the job market will hold steady and inflation pressures will ease as the impact of President Donald Trump’s erratically implemented system of trade tariffs wanes.
The most recent job market data show tepid job demand amid still-high inflation.
In a December television interview after the Fed policy meeting last month, Williams said that he didn’t see an urgent need to cut rates again.
Other Fed officials have offered similar policy outlooks over recent days, even as the Fed continues to face pressure from Trump and his associates to cut rates aggressively, despite over-target inflation.
In his speech, Williams said his economic outlook is “quite favourable.” He expects gross domestic product (GDP) for the year between 2.5% and 2.75%, with the unemployment rate stabilising this year and retreating in following years.
Williams also said that when it comes to inflation, 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. He sees inflation back at 2% by 2027.
Williams’ speech also came amid an unprecedented attack on the independence of the central bank. Last Sunday, Fed chair Jerome Powell announced the institution had been served with grand jury subpoenas threatening a criminal indictment related to cost overruns in the renovations of the central bank’s headquarters.
In a statement, Powell argued the legal moves were “pretexts” and in reality, “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.”
Williams said that while he couldn’t speak to any legal investigations into the central bank and its officials, he warned against compromising central bank independence.
Attacking central bank independence “often leads to very unfortunate economic outcomes” that can include “high” inflation, the official said.
Williams also said that chairman Powell had “proven himself to be a man of impeccable integrity” who had led the Fed through challenging times.
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 and raised the prospect of the president being unable to install any new members on the central bank board until he backs off legal attacks. — Reuters
