Williams says Fed may not have to hike rates in 2027, at odds with traders
Quick Look
New York Federal Reserve President John Williams stated he expects only one additional interest rate hike in 2027 after a potential increase this year, diverging from market expectations and some FOMC colleagues, while emphasizing data dependence and disinflationary trends despite ongoing energy and tariff influences.
AI-generated summary
Why It Matters
The Federal Reserve raised interest rates in September 2024, the first increase since 2023, with officials indicating plans for another hike but not specifying timing. The central bank is scheduled to meet again later this month and in December.
New York Federal Reserve President John Williams said Tuesday that he doesn't see additional rate hikes in 2027 after one more increase this year.
"I haven't changed my view that it may be appropriate to have one more rate hike," Williams said in an interview with Bloomberg News. "I don't think at this time I have any reason to believe that we would need to do more."
Williams' comments place him at odds with the market and some other members of the central bank.
Fed funds futures traders are largely betting that the central bank will raise rates at least once in 2027, according to CME's FedWatch data as of Tuesday. Latest trading gave about 90% odds that the Fed overnight rate would end 2027 at least a half percentage point higher than where it is today.
The New York Fed head is also at odds with many Federal Open Market Committee members, though he is still in-line with the majority. Eight of the 18 who gave a rate forecast for 2027 see one more increase after an additional hike this year. Williams is a permanent voting member of FOMC, the body that decides where interest rates should be set at each Fed policy gathering.
The Fed in September issued its first rate increase since 2023. Fed officials indicated plans for another hike in meeting minutes, but did not clarify when. The central bank meets at the end of this month and then one more time in December.
To be sure, Williams told Bloomberg that "we'll have to see" when it comes to forecasting into the new year.
"This economy is being affected by lots of different influences, and we just have to keep watching the data," Williams said.
Williams said the Fed should look at "underlying trends" in inflation amid price shocks tied to energy and artificial intelligence.
While the former San Francisco Fed chief cautioned that energy prices continue to put upward pressure on overall inflation, he said they could provide relief on an annual basis in the future. Williams also said that effects of tariffs on price growth have mostly been seen.
He said overall inflation for 2027 should be "near" the Fed's target of 2% on an annual basis. The personal consumption expenditures price index, the Fed's favored inflation gauge, in August showed a 12-month increase of 3.4% or 3% if stripping out food and energy prices.
"I still believe there's disinflationary forces at play. Those I don't think have fundamentally changed," Williams said. "In fact, my forecast for inflation for next year is inflation to come down quite a bit."
— CNBC's Matt Peterson contributed to this report.
What to Watch
AI outlook — possibilities, not facts
The Federal Reserve will implement one additional interest rate hike before the end of 2024.
Likely · Within months
U.S. inflation will move closer to the Fed's 2% target during 2027.
Likely · Within months
Open Questions
- When exactly will the Federal Reserve implement the anticipated rate hike this year?
- What specific data points will influence the Fed's decision on further tightening in 2027?
- How might evolving energy prices and AI-driven productivity shifts affect inflation trajectories beyond 2027?
