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”.

Fed Governor Stephen Miran, who dissented at the last FOMC meeting in favor of a larger 50bps cut, reinforced his dovish stance in a speech today, arguing that inflation risks are being overstated.

Miran acknowledged that the lack of a clear downward trend in core goods prices could argue for keeping rates elevated, but said he expects disinflation in housing services to “counterbalance that possibility”. The key risk, in his view, would be a renewed pickup in shelter inflation or a sustained overshoot in core goods prices. He judged both outcomes as unlikely, adding that if shelter inflation slows as expected while tariff effects disappoint, inflation could “undershoot our inflation target”.

He also pushed back against reliance on backward-looking inflation measures. Shelter inflation, Miran argued, reflects supply-demand imbalances from “two to four years ago” rather than current conditions. Given long and variable policy lags, he said monetary policy should be calibrated for 2027, not anchored to inflation dynamics from 2022.

On the employment side of the mandate, Miran warned that labor market deterioration can occur quickly and nonlinearly, and can be difficult to reverse. Keeping policy unnecessarily restrictive risks avoidable job losses, particularly when prices have stabilized, even if at higher levels. He reiterated that a quicker pace of easing would better move policy toward a neutral stance and reflect the current balance of risks.

Full speech of Fed’s Miran here.

Kansas City Fed President Jeffrey Schmid explained his dissent at this week’s FOMC meeting, where he voted to keep rates unchanged. He said in a statement his assessment of the economy has not shifted meaningfully since October, citing “continued momentum” in activity and inflation that remains above comfort levels.

Schmid described inflation as “too high” and the labor market as cooling but still “largely in balance.” In that context, his preference is to maintain monetary policy in a “modestly restrictive” setting rather than ease prematurely.

Addressing debate around policy restrictiveness, Schmid downplayed reliance on theoretical estimates of the neutral rate, calling r* an academic concept without a real-world equivalent. Instead, he said policy should be judged by “how the economy actually evolves”. From both incoming data and business contacts, he sees an economy that is “showing momentum and inflation that is too hot”, suggesting that policy is “not overly restrictive”.

Full statement of Fed’s Schmid here.

Chicago Fed President Austan Goolsbee explained his dissent at this week’s FOMC meeting, where he voted to hold rates rather than support the 25bps cut. He said policymakers should have waited for more incoming data, particularly on inflation, arguing that delaying the decision into the new year “would not have entailed much additional risk” and would have allowed the Fed to assess a more complete set of economic readings.

In a statement, Goolsbee noted that feedback from businesses and consumers in his district consistently points to prices as “a main concern”. At the same time, he described the broader economy as showing stable growth, with a labor market that is “only moderately cooling”. He characterized the current environment as one of “low hiring, low firing,” suggesting firms are responding to uncertainty rather than a traditional cyclical slowdown.

While acknowledging that recent inflation pressures may be linked largely to tariffs and could ultimately prove “transitory”, Goolsbee cautioned against assuming that outcome too quickly. He reiterated optimism that interest rates can fall meaningfully over the coming year, but stressed discomfort with heavily front-loading cuts.

Full statement of Fed’s Goolsbee here.

The Fed cut interest rates by 25bps to 3.50–3.75%, fully in line with expectations. The decision was done by a three way split. Governor Stephen Miran again voting for a larger 50bps reduction. Meanwhile Chicago Fed Austan Goolsbee and Kansas City Fed Jeffrey Schmid voted for no change. All other policymakers supported the quarter-point move.

The new projections signaled remarkable continuity. The federal funds rate path was left unchanged, with policymakers still expecting the policy rate to fall to 3.4% by the end of 2026, then 3.10% by the end of 2027, and remain there through 2028. This implies one 25bps cut per year in both 2026 and 2027.

Growth expectations, however, were revised meaningfully higher. GDP is now projected to expand 2.3% in 2026, up from 1.8% previously, and to grow 2.0% in 2027 and 1.9% in 2028. Labor-market projections were largely steady, with unemployment expected to be 4.4% in 2026, unchanged from prior forecasts. The rate for 2027 was nudged down from 4.3% to 4.2%, with 2028 left at 4.2%. Policymakers continue to signal a soft-landing baseline, where job markets cool without a material rise in unemployment.

Inflation projections were modestly lowered. Headline PCE is now expected at 2.4% in 2026, down from 2.6%, while the forecasts for 2027 and 2028 remain at 2.1% and 2.0%. Core PCE was trimmed to 2.5% for 2026 and left unchanged thereafter.

Full Fed statement and SEP.