Fed's Williams: Further hike likely this year, no urgency after September

Markets are reacting to Williams' dovish remarks.

• US economic momentum is strong and could be gaining strength.
• Investment tied to AI is becoming a growing concern for inflation.
• GDP is seen at 2.25% this year and unemployment at 4% over 2027.
• Fed policy can keep supply shocks from leaving a lasting impact.
• Inflation is seen at 3.5% this year, with the 2% target reached in 2028.
• The Fed must prevent inflation from taking hold.
• Getting inflation back to 2% is essential.
• Policy decisions will be made in response to incoming data.
• Provided the economy behaves as forecast, another hike is likely before the year is out.
• The Fed will need more data to decide where rates go next.
• After September's rate increase, he sees 'no need for urgency'.

John Williams, president of the New York Fed, pushed back on the idea that the Fed is racing to tighten, saying there is no urgent need to move again after September.

One more rate increase is probable this year, he said, if the economy lives up to expectations. He stressed, however, that the Fed would react to data and that more information would clarify what comes next.

Momentum in the US economy is strong and possibly strengthening, according to Williams. His projections put GDP growth at 2.25% this year and the jobless rate at 4% over 2027.

For inflation, Williams sees 3.5% this year and a return to the 2% target in 2028. He called it imperative to bring price increases back to target and said the Fed must not allow high inflation to become entrenched. He added that Fed policy can make sure supply shocks do not linger.

Williams also pointed to AI investment as an increasingly important inflation factor.

There were immediate market moves around his remarks, since Williams is a permanent voter and his stance runs counter to the 35 bps of hikes priced in this year. US 2-year yields fell 2.5 bps to 4.90%.