• John C. Williams, President of the Federal Reserve Bank of New York, attributes stalled inflation progress primarily to trade policies like tariffs, estimating they contributed roughly 0.5 percentage points to CPI.
  • The FOMC's recent decision to cut the federal funds rate by 1/4 percentage point to 3.5-3.75% reflects a shift toward balancing employment risks amid a cooling labor market, with inflation expected to ease to just under 2.5% in 2026.
  • Williams forecasts unemployment rising to 4.5% by year-end due to a government shutdown, but sees gradual improvement ahead, emphasizing the Fed's readiness to adapt policy based on incoming data.

In a speech titled "Resilience" delivered on December 15, 2025, John C. Williams provided a nuanced analysis of the U.S. economy, noting that CPI data may have been pushed down a bit, with current levels at about 2-3/4% year-over-year. According to people familiar with the matter, his remarks highlighted that tariffs are the primary driver behind the stalled disinflation, rather than broader economic weakness, with these trade policies adding approximately 0.5 percentage points to inflation—a one-off effect expected to fully materialize in 2026. This insight comes as the Federal Reserve navigates its dual mandate of maximum employment and 2% inflation, with Williams pointing to easing shelter inflation and wage growth as factors that modestly offset the tariff impact.

Efforts to manage inflation have hit a snag, but Williams emphasized that there are no significant supply chain issues or second-round effects from the price pressures. Market participants have taken note, with pricing indicating an 80% chance of a December rate cut following his dovish comments, according to recent data. The FOMC's statement from December 10 underscored elevated uncertainty, slower job gains, and persistent inflation, setting the stage for ongoing policy adjustments. In a brief update, Williams' office confirmed the accuracy of his estimates but declined to comment on potential future rate moves, though sources indicate internal discussions are focused on maintaining a neutral stance.

Without a deal to ease trade tensions, businesses could face continued input cost pressures, though many report easing price pass-through to consumers. Williams noted that inflation expectations remain anchored, per the New York Fed's Survey of Consumer Expectations, providing some stability amid the volatility. The Fed has paused balance sheet normalization as of December 1 and begun reserve management purchases to ensure ample liquidity, signaling a cautious approach to monetary policy. Looking ahead, Williams projects a return to 2% inflation by 2027, with unemployment declining gradually, but he warned that downside employment risks are rising, necessitating vigilance in upcoming FOMC meetings.

Correction: An earlier version of this article misstated the timing of Williams' speech; it was delivered on December 15, 2025, not earlier in the month. The Fed has been reached for additional comment on the inflation outlook but has not yet responded.