Federal Reserve "third-in-command" Williams: Does not believe there is a need to adjust the federal funds rate in the short term
Federal Reserve "number three" Williams stated on Thursday that although Trump's tariffs may raise inflation and drag down the economy, there is currently no need to adjust interest rates. The priority is to prevent tariffs from causing persistent inflation and to maintain the 2% inflation target and anchor market expectations. He expects U.S. GDP growth to be below 1% this year, and the unemployment rate may rise to 4.5% to 5%, but this does not constitute a recession
On Thursday, Federal Reserve "number three," New York Fed President Williams stated that despite the new round of tariffs from the Trump administration potentially raising inflation, dragging down economic growth, and increasing unemployment, there is no need to adjust the federal funds rate in the short term.
He said:
"I believe the current monetary policy is in a good position, and there is no need to adjust the federal funds rate in the short term."
Williams pointed out that there is considerable uncertainty in the economic outlook. He reiterated his view that the Trump tariffs have at least currently pushed up prices, and he expects the U.S. GDP growth rate this year may be below 1%, with the unemployment rate rising from the current 4.2% to a range of 4.5% to 5%. However, he emphasized:
"This is not a recession, just an economic performance that is growing slower than in the past few years."
Although Williams did not explicitly predict how much inflation would rise, he confirmed that tariffs will exert upward pressure on prices this year, and the priority is to prevent price increases caused by tariffs from evolving into persistent inflation:
"We must ensure that these one-time price increases do not evolve into long-term high inflation."
"Our goal is to stabilize the inflation rate at 2% and achieve sustainability."
Additionally, he emphasized the importance of anchoring inflation expectations. He noted that the future path of interest rates will depend on the actual impact of policy shocks on the economy and inflation, as well as changes in public expectations about prices:
"We must stabilize inflation expectations during this period, and frankly, that is my focus."
Williams's remarks echoed the views of Fed Chair Powell, highlighting that Fed officials are not in a hurry to adjust interest rates. Powell also warned on Wednesday that tariffs would bring additional inflationary pressure, so it is currently a time to observe data and not to rashly adjust interest rate policy