Fed’s Williams Says Slowing Growth May Allow Rate Cuts While Staying Restrictive

New York Federal Reserve President John Williams said the U.S. economy has slowed to an annual growth rate of roughly 1%–1.5% and is likely to remain on that path, though he stressed the situation is a "slowing" rather than a stalling economy. The unemployment rate, at 4.2%, is still considered historically low, but Williams noted a clear moderation in hiring and labour-force expansion. Wage gains remain consistent with a solid labour market and an inflation trajectory toward the Fed’s 2% goal, Williams said in a CNBC interview. He added that progress on inflation has been "very slow" and estimated that higher import tariffs may be adding about 0.4 to 0.5 percentage point to core PCE inflation. Williams described the current stance of monetary policy as "modestly restrictive" and suggested the Federal Open Market Committee could lower interest rates and still keep policy in restrictive territory. If the neutral, or r-star, rate is near 1% or slightly below, "we are restrictive now," he said, adding that reductions will become appropriate "in time" as risks to employment and price stability move closer to balance. Each FOMC meeting, he emphasized, remains "live." The New York Fed chief urged policymakers to treat r-star estimates with caution, reiterated the importance of the central bank’s independence, and declined to discuss allegations involving Governor Lisa Cook beyond saying she has always acted with integrity.