Fed’s Williams sees cooling jobs market, tariff risks contained

New York Fed President John Williams said monetary policy is “well positioned” heading into 2026, as the Fed has moved from a modestly restrictive stance toward neutral. He emphasized the need to return inflation to the 2% target without creating “undue risks” to the labor market, framing current policy as appropriately balanced after recent cuts.

Williams noted a shift in the risk profile. “the downside risks to employment have increased as the labor market has cooled, while the upside risks to inflation have lessened somewhat,” he noted.

On tariffs, Williams said their impact on prices has been smaller than initially expected. Import levies appear to have caused one-off price increases rather than persistent inflation pressures. He expects tariff-related effects to be fully realized in 2026, with inflation moderating to around 2.5% next year before easing back to 2% in 2027.

Turning to the labor outlook, Williams sees the unemployment rate ticking up to 4.5% this year, but expects it to gradually decline over the following years alongside forecast growth of 2.25% in 2026. He stressed that the cooling in the labor market has been gradual, “without signs of a sharp rise in layoffs or other indications of rapid deterioration”.