Fed’s Williams Draws a Clear Line: Inflation Must Return to 2%

Federal Reserve Bank of New York President John Williams reaffirmed the central bank’s commitment to restoring price stability, stressing that bringing inflation back to its 2% target remains critical for the US economy. Speaking at an event hosted by the New Jersey Bankers Association, Williams struck a measured tone, signaling confidence that current monetary policy is well positioned to guide the economy through the coming years.

Williams said inflation is expected to ease gradually, projecting it at around 2.5% in 2026 before settling at the Fed’s 2% goal in 2027. He downplayed concerns that recent tariffs could fuel sustained price pressures, describing them as a one-time adjustment rather than a driver of broader inflation trends.

On the labor market, Williams noted that cooling has been orderly rather than abrupt. While risks to employment have increased slightly, he argued that inflation risks have eased, allowing the Fed more flexibility. Unemployment is expected to reach about 4.5% by the end of 2025, before gradually improving in subsequent years as economic conditions stabilize.

Economic growth, meanwhile, is forecast to remain resilient. Williams expects US GDP growth to reach roughly 2.25% in 2026, outperforming the pace anticipated for 2025. This outlook suggests that the economy can continue expanding even as inflation slows and monetary policy normalizes.

Williams also highlighted operational aspects of Fed policy, including the potential for more active use of the standing repo facility to manage market liquidity. He emphasized that policy has shifted from being modestly restrictive toward a more neutral stance, reflecting progress on inflation without abandoning vigilance.

Above all, Williams underscored that the Fed’s dual mandate remains front and center. Monetary policy, he said, is firmly focused on balancing the goal of stable prices with the need to support jobs, reinforcing the message that returning inflation to 2% is not optional, but essential for long-term economic health.