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New York Federal Reserve President John Williams has said the US central bank’s recent interest rate cut was appropriate and has left monetary policy in a strong position as the economy heads into 2026.
Speaking at an event organised by the New Jersey Bankers Association in Jersey City, Williams said the Federal Reserve is well placed to manage an economy expected to perform reasonably well next year. He noted that the latest easing has moved policy closer to a neutral stance.
“Monetary policy is well positioned as we head into 2026,” Williams said, adding that the Federal Open Market Committee has shifted policy from a modestly restrictive position toward neutrality.
Williams stressed the importance of returning inflation to the Fed’s 2 per cent target without placing unnecessary strain on the labour market. He said downside risks to employment have increased as hiring conditions cool, while upside risks to inflation have eased somewhat.
“I was very supportive of the decision we made” to cut rates, Williams told reporters after his remarks, though he declined to signal the Fed’s next move. Ahead of the January 27–28 policy meeting, he said policymakers would continue to assess incoming data, noting that it is “too early to say” what action may be required next.
The comments mark Williams’ first public remarks since the Fed cut its benchmark overnight interest rate by 25 basis points on December 10, bringing it to a range of 3.50 to 3.75 per cent. The move was aimed at balancing rising risks to the labour market against inflation that remains above target.
Fed Chair Jerome Powell has also acknowledged uncertainty over the policy outlook, leaving open the question of whether further rate cuts could follow at the January meeting.
On the economic outlook, Williams said he is more optimistic about growth prospects for next year as uncertainty fades and inflation pressures continue to moderate. He described the Fed’s current outlook as a “pretty good outcome” following the elevated uncertainty that characterised much of 2025.
Williams noted that tariffs have had less impact on prices than initially expected, largely resulting in one-off price increases rather than sustained inflationary pressures. He said the full effect of tariffs would be reflected in 2026, with inflation projected to ease to about 2.5 per cent next year and return to the 2 per cent target in 2027.
He also expects the unemployment rate to edge up to around 4.5 per cent this year, before gradually declining in the years ahead, supported by projected economic growth of about 2.25 per cent next year.
“The labour market is clearly cooling,” Williams said, emphasising that the process has been gradual and has not been accompanied by sharp increases in layoffs or signs of rapid deterioration.
Commenting on financial markets, Williams said asset valuations appear elevated by traditional measures, although he acknowledged there are reasons for this. He added that rising stock market wealth is likely to support economic growth next year.
Williams also addressed the Fed’s recent announcement of Treasury bill purchases aimed at managing reserves and maintaining effective control of short-term interest rates. While the central bank described the move as technical, some market participants have viewed it as a form of stimulus.
“This is the natural next step in implementing our ample reserves framework to ensure effective interest rate control,” Williams said, adding that the Fed’s Standing Repo Facility would continue to play a role in supplying liquidity to the banking system when needed.
He noted that the appropriate level of liquidity in financial markets can evolve over time, underscoring the Fed’s flexible approach to reserve management.
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