By Matt Grossman
New York Fed President John Williams said that interest rates are in a comfortable place as the Fed's first meeting of 2026 approaches, hinting that he and other U.S. central bankers may not be in a rush to bring interest rates lower this month.
Speaking at the Council on Foreign Relations in New York City Monday evening, Williams said that in the past 12 months the labor market has cooled, while the underlying trend in inflation appears to be easing into alignment with the Fed's 2% target. That shifting balance prompted the Fed's three quarter-point rate cuts between September and December, which have brought the central bank's target interest-rate range down to 3.5% to 3.75%.
After those cuts, however, the Fed's policy stance is now closer to a neutral level that is no longer working so aggressively to restrain the economy, Williams said, suggesting less of a need for further cuts in the near future.
"Monetary policy is now well positioned to support the stabilization of the labor market and the return of inflation to the FOMC's longer-run goal of 2 percent," Williams said, referring to the Fed's policy committee by its initials.
Much has changed in the U.S. economy during the past 12 months--including the start of the second Trump administration and the White House's double-barreled economic policies of steep new tariffs and a harsh clampdown on immigration.
Yet in some ways, the Fed's decision framework looks similar to the view a year ago.
Last January, too, the Fed was monitoring a gradual rise in unemployment and was emerging from a stretch of three straight rate cuts in the final few months of 2024. With inflation still elevated, however, officials put those rate cuts on pause in January 2025, taking the time to see how the policy landscape developed before making further adjustments.
In a speech in Hartford, Conn., a year ago this week, Williams likewise said that rates were "well positioned" ahead of the Fed's first 2025 meeting, hinting at the hold-steady posture that the Fed adopted in the eight months that followed.
With the Jan. 28 decision on the horizon, Fed officials are making their final public remarks about monetary policy before the traditional pre-meeting communications blackout begins on Saturday. Investors parse comments from Williams especially closely, given his role as vice chair of the Fed's policy committee and his close working relationship with Fed Chair Jerome Powell.
The published text of Williams's speech did not touch on Sunday's revelations that the Justice Department is investigating Powell over senate testimony he gave last summer about the Fed's efforts to renovate its headquarters in Washington, which have run well over initial budgets.
Williams was scheduled to take part in a moderated question-and-answer session immediately after his speech.
Write to Matt Grossman at matt.grossman@wsj.com
(END) Dow Jones Newswires
01-12-26 1814ET
