New York Fed President: "One More Rate Hike This Year May Be Appropriate"

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John Williams, president of the Federal Reserve Bank of New York, said it would be appropriate to raise interest rates once more this year, but that no further hikes would be needed next year. He based that outlook on his expectation that the inflationary pressures from tariffs and rising energy prices would ease, despite increased investment in artificial intelligence (AI) infrastructure adding to price pressures.

In an interview with Bloomberg News at the Federal Reserve Bank of New York on Oct. 13 local time, Williams said, "My view that it may be appropriate to raise rates one more time has not changed," adding, "At this point, I don't see a reason to believe that further rate increases will be needed after that."

The Federal Reserve (Fed) raised its benchmark interest rate by 0.25 percentage point at the September Federal Open Market Committee (FOMC) meeting. Fed officials are divided over the extent of any further rate increases.

Earlier, Beth Hammack, president of the Federal Reserve Bank of Cleveland, and Lorie Logan, president of the Federal Reserve Bank of Dallas, said they believed at least one more rate hike would be needed to bring inflation back to the Fed's 2% target.

Market expectations are also more hawkish than Williams. Bloomberg reported that futures markets for the federal funds rate were pricing in a rate hike in December, followed by two more increases in 2027.

Inflation Seen Near 2% Next Year... "Tariff and Energy Shocks Temporary"

Williams also forecast that inflation would slow considerably next year and move close to the Fed's 2% target, as the effects of tariffs and surging energy prices fade.

"We've had tariffs and energy prices, and more recently AI, but these factors don't mean underlying inflation is rising," he said. "In fact, measures of underlying inflation have declined."

Williams cited the prolonged conflict in the Middle East and rising energy prices as reasons he supported a rate hike in September. He said oil prices were initially expected to fall once the war with Iran ended, but instead the conflict dragged on, sustaining upward pressure on energy prices.

He noted that the price gap between crude oil and petroleum products had widened significantly in recent months, making fuel costs a greater burden than expected. However, he stressed that these short-term drivers of higher prices had not changed the long-term inflation outlook.

"The U.S. economy as a whole is not overheated," Williams said. "The economy is not in a situation where additional inflationary pressures are emerging beyond the specific shocks we are experiencing now."

Signals Rates Could Hold Steady in October

Ahead of the FOMC's regular meeting scheduled for Oct. 27-28, Williams reiterated his view that there is no need to rush into another rate hike. In a speech on Sept. 29, he said there was little urgency to tighten policy further after the September rate increase.

Fed Vice Chair Philip Jefferson later expressed a similar view, prompting speculation in financial markets that Fed leaders had coordinated their remarks in advance to steer the decision toward holding rates steady in October.

Williams said his remarks reflected his own independent economic judgment. "Market-implied expectations are useful information," he said, while explaining that his comments last month were based on his assessment of the economic data available at the time.

Williams stressed that considerable uncertainty remains about the future path of monetary policy. "It's still mid-October," he said. "The U.S. economy is being affected by a range of factors, so we need to keep watching the economic data."

The Fed is set to get a further reading on inflation with the release of the September Consumer Price Index (CPI) on Oct. 14. It is the last consumer price report scheduled before this month's FOMC meeting.

The president of the Federal Reserve Bank of New York holds a permanent voting seat on the FOMC and serves as its vice chair. The president is considered a key figure in monetary policy decisions, alongside the Fed chair and the vice chair of the Fed Board of Governors.

U.S. Treasury yields edged lower after Williams' remarks. The yield on the two-year Treasury note, which is sensitive to the Fed's monetary policy outlook, erased all of its intraday gains of as much as 0.03 percentage point.

This content was produced with the assistance of AI translation services.