Key Points

  • New York Fed President John Williams said Monday that the labor market is showing signs of weakness, while noting that after cutting the federal funds rate by 25 basis points this month, monetary policy is still restraining inflation.
  • Williams said the current central bank benchmark rate range of 4% to 4.25% "continues to be in what we call restrictive territory," and that the main rate is "expected to put downward pressure on inflation."
  • Meanwhile, "the labor market is softening," with the unemployment rate gradually rising over the past year. Williams said, "We have to get the balance right," pointing to the challenges policymakers face in achieving the dual mandate of price stability and maximum employment.

Deeper Dive

Williams said tariffs have had a smaller impact on inflation than expected so far. He cited estimates that import tariffs have raised prices by about 0.3 to 0.4 percentage points.

"Excluding goods affected by tariffs, underlying inflation continues to decline, but very slowly," he said, adding that "it's hard to know exactly how tariffs affect goods and services."

The Fed's preferred inflation gauge—the personal consumption expenditures (PCE) price index, excluding volatile energy and food prices—remained at an annual rate of 2.9% last month, according to data released by the Bureau of Economic Analysis on Friday.

Policymakers' efforts to bring inflation down to the 2% target have stalled for months due to the Trump administration's tariffs, which are the highest in the U.S. since the 1930s.

While some Fed officials have leaned toward easing policy in recent months, others are more cautious than Williams, emphasizing the need to avoid a resurgence of inflation.

"I remain concerned about the current inflation situation," Cleveland Fed President Beth Hammack said Monday. "I think we really need to maintain a restrictive policy stance."

Hammack said in an interview with CNBC that the central bank may not bring inflation down to 2% until late 2027 or early 2028.

"I still see inflation pressures, both in headline and core data, and what particularly concerns me is the inflation pressure in services," she said.

St. Louis Fed President Alberto Musalem echoed Hammack's views on Monday, saying the central bank should "contain" inflation.

"I do think we need to be careful because there is limited space between now and when policy could become overly accommodative," he said during a panel discussion at Washington University in St. Louis, as reported by Bloomberg News.

At the same time, Musalem said he is "open to the possibility of further rate cuts in the future."

Fed officials, in their median projections on September 17, expect two 25-basis-point rate cuts before the end of 2025.