By Greg Robb

New York Fed's John Williams says 'there is no need for urgency' after September hike

New York Fed President John Williams always has a vote on Fed interest-rate decisions.

Financial-market participants have become increasingly confident that Federal Reserve officials will raise interest rates at their October meeting. But a leading U.S. central banker added a note of caution to the equation on Wednesday.

New York Fed President John Williams, an influential official who votes on every Fed interest-rate decision, suggested that the central bank does not have to rush to raise rates and has time to collect more data before hiking again.

"With the policy action we took at our September meeting, there is no need for urgency, and we have time to gather more information," Williams said in a speech at the University of Buffalo in New York.

The Fed hiked rates by a quarter point, to a range of 3.75% to 4%, earlier this month. It was the first such hike since 2023.

Inflation has been above the Fed's 2% target for more than five years, and the central bank has faced criticism for struggling to combat rising prices effectively. Officials have been trying to strike a balance between using their tools to keep prices down and not overreacting to temporary shocks like the war in Iran. Multiple rate hikes risk slowing the economy dramatically.

Williams said the September hike was designed to support "a timelier return to 2% inflation."

"While monetary policy cannot move ships or reopen pipelines and refineries, it can diminish the risk that these supply shocks spill over into broader and more persistent inflation," he said.

In his remarks about the outlook for interest rates, Williams stressed the Fed is interested in "underlying trends." Economists who think the Fed will hold off on an October hike believe that Williams's use of the term "trends" suggests he means more than the one month worth of data. The Fed will only get a limited amount of data before its Oct. 27-28 meeting.

On Monday, traders in derivative markets had raised their odds of a October rate hike as high as 70%, before they cooled to 60% on Tuesday. Following Williams's comments, the odds went down to just over 50%. Traders are pricing in three more quarter-point rate hikes by March.

Only one more increase?

Williams suggested the market might be ahead of the central bank, and that the Fed might decide to stop after only one more rate increase that could happen "late" this year.

"If the economy evolves in a manner broadly consistent with my forecast, one further upward adjustment of the federal-funds target range may be appropriate late this year to support a timelier return of inflation to target," he said.

Omair Sharif, president of Inflation Insights, said that Williams's remarks contrast with other officials like Fed governor Michael Barr, who has said the Fed may need multiple hikes.

In a separate appearance on Tuesday, Barr said that higher tariffs and the war with Iran have "meant we have been knocked off course on our progress toward our 2% goal."

Williams said he expects inflation will slow to just above the Fed's 2% target next year.

The Fed has two meetings left this year - one at the end of October, and one in mid-December. Sixteen out of 18 Fed officials penciled in another rate hike this year in their economic forecasts released earlier this month.

Krishna Guha, vice chairman of Evercore ISI, said in a note to clients on Monday that he thought bond markets pricing in aggressive Fed hiking showed that Fed Chairman Kevin Warsh and his colleagues were "in danger of losing control of market rates and the policy stance."

Warsh has stressed that he doesn't like to give "forward guidance," or tip the Fed's thinking about a specific upcoming meeting to markets, like his predecessor Jerome Powell often did.

Tim Duy, chief U.S. economist at SGH Macro Advisors, said that Powell typically used forward guidance as a "dovish anchor" - in other words, explaining to markets that he had no interest in raising rates.

"Cutting free of that anchor leaves only one direction for rates across the curve in this environment - higher," Duy said in a recent note to clients.

-Greg Robb

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

09-29-26 1613ET