Fed’s Williams Sees 1%–1.5% Growth, Says Rate Cuts Will Be Needed

Federal Reserve Bank of New York President John Williams said the U.S. economy is expanding at only 1% to 1.5% on an annualized basis and is likely to maintain that slower pace. He characterized current conditions as a "slowing economy, not a stalling economy," noting that the unemployment rate remains historically low at 4.2% even as hiring and labor-force growth have begun to cool. Williams told reporters that progress on bringing inflation back to the Federal Reserve’s 2% target has become “very slow,” estimating that the 145% tariff on Chinese goods is adding roughly 0.4 to 0.5 percentage point to core PCE prices. He said policymakers are “putting a little bit of downward pressure” on activity and remain in a “modestly restrictive” stance, with the federal-funds rate sitting above what he views as neutral—around 1% or slightly lower. With risks to jobs and prices becoming “closer to balance,” Williams signaled that “at some point” it will be appropriate to move rates lower, though he emphasized the timing will depend on how incoming data evolve. For now, he said the central bank must continue to assess the balance of risks while watching services inflation closely.