• New York Fed President John Williams states GDP growth has slowed and expects the deceleration to persist.
  • The warning comes despite a recent headline rebound in Q2 2025, with underlying domestic demand remaining soft.
  • Policy uncertainty, sticky inflation, and a tightening labor market are cited as key headwinds clouding the economic outlook.

New York Federal Reserve President John Williams said Thursday that U.S. economic growth has downshifted and is likely to continue on a slower trajectory in the coming quarters. The comments, made during a moderated discussion, point to growing concern among policymakers that the economy is losing momentum despite a temporary rebound last quarter.

Gross domestic product increased at a 3.0% annualized rate in the second quarter, a sharp reversal from the -0.5% contraction recorded in Q1. However, Williams and other analysts have characterized this rebound as distorted by volatile trade flows and tariff-related front-loading of activity, rather than a sign of robust underlying health. “When you look through the quarterly noise, the trend is clearly one of moderating growth,” Williams said, according to people familiar with his remarks.

The core of the U.S. economy appears softer than the headline figure suggests. Real final sales to private domestic purchasers—a key gauge of underlying domestic demand—rose a modest 1.2% in Q2. This slowdown is increasingly weighing on small businesses and lower-to-middle-income families, while economic activity becomes more concentrated in large firms and affluent households, making the expansion more vulnerable to shocks.

Efforts to contact a spokesperson for the New York Fed for further comment were not immediately successful.

The anticipated slowdown is attributed to a confluence of factors, including policy uncertainty from new tariffs, resurgent inflation, and the lagging effects of elevated interest rates. These are beginning to dampen business investment and household consumption. Furthermore, early signs of strain are emerging in the labor market, with a recent uptick in unemployment insurance claims and rising job cut announcements, even as the overall unemployment rate remains low.

With the federal deficit projected to hit 6.4% of GDP this year, the scope for a significant fiscal policy response appears limited. The consensus among economic forecasters is for growth to slow to around 1-1.5% through 2026, a significant step down from the post-pandemic recovery period. The risks, according to analysts, are tilted toward further deceleration if current headwinds persist.