JERSEY CITY, New Jersey, Dec 15 (Reuters) – New York Federal Reserve President John Williams said on Monday the U.S. central bank’s interest rate cut last week leaves it in a good position to deal with what lies ahead, adding that he sees inflation moderating amid cooling in the job market.
“Monetary policy is well positioned as we head into 2026,” Williams said at an event held by the New Jersey Bankers Association in Jersey City. With the recent easing, the rate-setting Federal Open Market Committee “has moved the modestly restrictive stance of monetary policy toward neutral.”
Williams said it is “imperative” to get inflation back to 2% while not “creating undue risk” to the job market. “My assessment is that in recent months, the downside risks to employment have increased as the labor market has cooled, while the upside risks to inflation have lessened somewhat.”
Williams’ comments were his first public remarks since the Fed cut its benchmark overnight interest rate by a quarter of a percentage point to the 3.50%-3.75% range on December 10, in an effort to balance rising risks to the job market with inflation levels that remain problematically above the 2% target.
Fed Chair Jerome Powell told reporters in a post-meeting press conference that what lies ahead for monetary policy is uncertain, leaving it unclear whether the central bank will lower rates again at its next meeting in late January.
‘LABOR MARKET IS CLEARLY COOLING’
Williams said he was more upbeat on U.S. economic growth for next year as uncertainty eases and inflation pressures moderate. He noted that tariffs have not impacted prices as much as he had expected, adding that the import levies appear to have led to one-time price increases that do not translate into persistent gains in price pressures.
He said the tariff impact on price pressures “will be fully realized in 2026” and inflation will moderate to 2.5% next year and to 2% in 2027.
He also said he sees the jobless rate ticking up to 4.5% this year, but added that with his forecast of 2.25% growth next year, “I expect the unemployment rate to gradually come down over the next few years.”
“The labor market is clearly cooling, I should emphasize that this has been an ongoing, gradual process, without signs of a sharp rise in layoffs or other indications of rapid deterioration,” Williams said.
The Fed also announced at the end of its policy meeting last week what it called reserve management asset buying, which is the purchase of Treasury bills to rebuild financial sector liquidity to ensure the central bank keeps firm control of its interest rate target. While the Fed billed the buying as purely technical in nature, some observers view it as a kind of stimulus.
“This is the natural next step in the implementation of our ample reserves framework to ensure effective interest rate control,” Williams said of the asset buying. He added that he expects active usage of the Fed’s liquidity-providing Standing Repo Facility when banks need cash.
(Reporting by Michael S. Derby; Editing by Paul Simao)
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