New York Fed's Williams: Further rate cuts depend on inflation progress, tariff impacts are a "one-time shock"

The impact of tariffs and inflation trends are becoming key variables for the Federal Reserve's next actions. John Williams, President of the New York Federal Reserve, stated on Tuesday that if inflation continues to decline after the effects of tariffs gradually fade, the Federal Reserve will have reason to further cut interest rates. Williams expects that tariffs will exert additional pressure on consumer prices in the first half of this year, after which the inflation rate is projected to drop to 2.5% by the end of 2026 and return to the 2% target level in 2027. He emphasized that given the well-anchored inflation expectations and the lack of second-round effects, tariffs mainly bring about a one-time price shock, with peak effects expected to pass later this year. Regarding the labor market, Williams noted recent "encouraging signs of stability," and underpinned by "robust" economic growth, the unemployment rate is expected to continue a slight downward trend over the next two years. He anticipates economic growth of about 2.5% this year. Tariff Impact Seen as "Transitory Effect" In a speech prepared for an event in Washington, New York Fed President Williams clearly expressed a conditional interest rate cut stance. He stated: "If inflation develops in the direction I expect, there will ultimately be reason to further lower the federal funds rate to prevent monetary policy from inadvertently becoming more restrictive." Regarding the impact of tariffs on prices, Williams characterized it as a "one-time shock." He pointed out that since no second-round inflation effects have yet emerged and long-term inflation expectations remain stable, tariffs mainly bring about temporary price fluctuations, with peak effects expected to dissipate "later this year." However, he also admitted that the full impact of tariffs has not yet fully manifested, and the Federal Reserve's progress toward the 2% inflation target has "temporarily stalled." Labor Market Exhibiting "Low Hiring, Low Layoffs" Pattern New York Fed President Williams described the current job market as "an unusually low hiring, low layoffs" state, with the overall pattern tending to be static. He noted that household surveys show pessimistic sentiment, providing policymakers with "warning signals" that require ongoing attention. According to Bloomberg, Federal Reserve officials are gradually reaching a consensus: the January job recovery and decline in the unemployment rate are evidence of a stabilizing labor market, and most officials believe action should wait until inflation further approaches the 2% target. However, a minority of officials are concerned that broad job creation remains insufficient and believe this situation still needs to be improved through further interest rate cuts. Overall, Williams' statements reflect the Federal Reserve's current cautious tone: in the context of ongoing tariff uncertainties and a temporarily stalled inflation process, any policy adjustments must be data-driven