New York Fed President John Williams warned overnight that the combination of policy uncertainty, restrictive trade measures, and declining immigration will drag significantly on the US economy this year. He projects growth will decelerate to just 1%, with unemployment rising to 4.5% by the end of 2025. Williams also anticipates a near-term spike in inflation to 3%, driven by tariffs, though he expects that to slowly subside back toward 2% over the next two years.
While Williams described the hard economic data as still solid, he acknowledged a growing disconnect with softer indicators that point to rising concerns among consumers and businesses. Nonetheless, he welcomed signs that inflation expectations remain anchored despite recent price shocks.
Looking ahead, Williams emphasized that monetary policy will be guided by data due “over the next few months,” which will inform whether and when Fed should adjust interest rates. Though he reiterated that “interest rates eventually need to get back to more normal levels”, his comments suggest a wait-and-see approach remains the most likely course for now.
