Fed's Williams says rate cuts possible if inflation slows

Investing.com - Federal Reserve Bank of New York President John Williams said interest-rate cuts will be warranted if inflation slows further once most of the impact of tariffs has passed.

Williams said Tuesday in remarks prepared for an event in Washington that if inflation follows his expected path, reductions in the federal funds rate will eventually make sense to prevent monetary policy from becoming more restrictive.

Tariffs should have some impact on consumer prices during the first half of the year before the inflation rate declines to 2.5% at the end of 2026, and to 2% in 2027, he added.

Williams noted that there have been signs of stabilization in the labor market during recent months, and the unemployment rate should continue to edge down this year and next, helped by solid growth. He expects the economy will grow by around 2.5% this year.

He also pointed out that he expects the tariffs largely to have one-off effects on prices, adding that the peak effect of the levies will pass later this year.

Given the full impact of tariffs is yet to be felt, progress toward the Fed's 2% inflation goal has temporarily stalled, Williams stated.

Fed officials are pointing to signs of stabilization in the labor market following a pick-up in hiring in January and a drop in the unemployment rate. Many policymakers would now prefer to wait for signs that inflation is falling back to the Fed's 2% goal. Some policymakers worry the lack of widespread job creation could still warrant more rate cuts.

Williams said the job market remains in a low-hire, low-fire dynamic. He noted there is a more pessimistic perception from households surveys, which provide a cautionary signal for policymakers to monitor.

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