Williams says Fed may not have to hike rates in 2027, at odds with traders
New York Fed President John Williams sees one more rate hike in 2026 but no additional increase in 2027 as inflation pressures ease.
Key points
- New York Fed President John Williams said Tuesday he sees only one more rate hike this year and none in 2027.
- Fed funds futures traders put about 90% odds on the Fed's overnight rate ending 2027 at least a half percentage point higher than today.
- Eight of the 18 FOMC members who gave a 2027 rate forecast see one more increase after an additional hike this year.
New York Federal Reserve President John Williams said Tuesday that he expects one more rate increase this year but does not see additional rate hikes in 2027. He made the comments in an interview with Bloomberg News.
Williams' view puts him at odds with market traders and some other central bank officials. He is a permanent voting member of the Federal Open Market Committee, which sets interest rates at each Fed policy meeting.
What traders expect
Fed funds futures traders are largely betting 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 it is today.
I haven't changed my view that it may be appropriate to have one more rate hike.
— John Williams
Williams on inflation
Williams said the Fed should look at underlying trends in inflation amid price shocks tied to energy and artificial intelligence. He cautioned that energy prices continue to put upward pressure on overall inflation, but said they could provide relief on an annual basis in the future, and that effects of tariffs on price growth have mostly been seen.
He said overall inflation for 2027 should be near the Fed's 2% target on an annual basis. The personal consumption expenditures price index, the Fed's favored inflation gauge, showed a 12-month increase of 3.4% in August, or 3% when food and energy prices are stripped out.
The Fed issued its first rate increase since 2023 in September. 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 again in December.
