Fed October Rate Hike Sees Timing Flexibility
NY Fed President Williams added timing flexibility to the Fed October rate hike outlook, complicating near-term trader positioning and hedging.
KEY TAKEAWAYS
- Williams said officials have time to gather additional information, adding timing flexibility to an October rate decision.
- FOMC raised the federal-funds target range by 25 bps to 3.8%-4.0%.
- Williams called inflation 3.7% 'unquestionably too high' and said one additional late-year increase may be appropriate.
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New York Fed President John C. Williams said on Sept. 29, 2026, that policymakers "have time to gather additional information" after the Fed’s September rate increase, introducing timing flexibility into the Fed October rate hike outlook while leaving a conditional late-year increase possible.
Timing Flexibility After September Hike
At its Sept. 15–16 meeting, the Federal Open Market Committee (FOMC) raised the federal-funds target range by 25 basis points to 3.75%–4.00%, according to the Sept. 16 FOMC statement. Williams said officials “have time to gather additional information” after that action and that “there is no need for urgency,” signaling flexibility on the timing of the next move.
He added that if the economy evolves broadly in line with his forecast, “one further upward adjustment” of the federal-funds target range may be appropriate late this year. Williams emphasized this was his personal forecast, not a committee commitment.
Inflation Outlook and Economic Projections
Williams described inflation at 3.7% as “unquestionably too high” relative to the Fed’s 2% longer-run goal. He identified higher import tariffs, supply-chain disruptions, elevated energy and commodity prices linked to conflicts, and strong demand tied to AI-related investment as key inflation drivers.
He said he had not seen evidence that these factors had spread into broader, more persistent inflation but noted that inflation risks from AI-related demand and energy prices had grown more significant.
Williams projects inflation will average 3.5% in 2026, ease to just above 2% in 2027, and reach 2% in 2028. He expects real gross domestic product growth of about 2.25% in both 2026 and 2027, with unemployment declining to roughly 4% over the next year.
The remarks were delivered at the University at Buffalo. The New York Fed said the views expressed were Williams’s alone and did not necessarily reflect those of the FOMC or the Federal Reserve System.
