Fed's Williams: Labor market risks have risen as risk to inflation have eased

Fed's Williams indicates that labor market risks are rising while inflation risks have eased. He suggests that policy is well positioned for future challenges, viewing tariffs as a one-off price adjustment without broader inflationary spillover. Inflation is projected to reach 2.5% in 2026 and 2% in 2027, with a forecasted decrease in jobless rates. GDP growth is expected to hit 2.25% in 2026, surpassing rates from 2025. The market anticipates a nearly 25% chance of a rate cut in January and fully prices in two cuts for next year, with a 33% chance for a third cut. Williams emphasized reduced uncertainty over tariffs, stating that the Fed’s baseline forecast is for a ‘pretty good outcome’. The gradual cooling of the labor market points to a modestly restrictive monetary policy, while inflation remains a concern.