Advocates for a reduction in interest rates by the Federal Reserve gained significant support on Friday when John C. Williams, president of the Federal Reserve Bank of New York, expressed that the central bank has the capacity to lower borrowing costs “in the near term.” Williams, a close associate of Fed Chair Jerome H. Powell, articulated concerns primarily regarding the cooling labor market, emphasizing that this posed a greater risk than the potential for rising inflation linked to President Trump’s tariffs becoming a long-standing issue.
During a speech in Santiago, Chile, Williams noted, “My assessment is that the downside risks to employment have increased as the labor market has cooled, while the upside risks to inflation have lessened somewhat.” He pointed out that the trend in underlying inflation is moving downward, with no substantial evidence indicating that tariffs are causing second-round effects on the economy.
Williams reiterated that current interest rates, set between 3.75 percent and 4 percent, remain “restrictive,” thereby impacting economic activity. Despite the recent two quarter-point cuts made in September and October meetings, he believes there is still room for further reductions to achieve a “neutral” interest rate stance, which would neither stimulate nor hinder economic growth.
This outlook from a key Federal Reserve official may help shift the economic narrative, highlighting a cautious approach while also providing a more optimistic perspective for those concerned about the labor market. With continued monitoring of inflation trends, the central bank appears poised to act in a manner that seeks to balance growth and stability in the economy.