New York Fed chief: “One more rate hike this year, then rates on hold next year”

[Financial News]  

The president of the New York Fed, the de facto No. 2 at the U.S. Federal Reserve System (Fed), said on the 13th (local time) that another rate hike next year would be unnecessary, taking a clear stance against it. That assessment differs from market expectations, which anticipate the possibility of further hikes.

CNBC reported that New York Fed President John Williams said in an interview with Bloomberg News that day that the Fed was likely to raise rates once more this year and then take a wait-and-see approach next year.
Williams said, “I have not changed my view that it may be appropriate to raise rates once more,” adding, “At this point, I do not think there is a need to raise them further (next year).”
After delivering its first rate hike in more than three years this past September, the Fed has two Federal Open Market Committee (FOMC) meetings left this year. Given that the midterm elections are on the 3rd of next month, an additional rate hike is widely expected at the Dec. 8–9 FOMC meeting rather than at the meeting on the 27th–28th of this month.

According to the CME Group’s FedWatch Tool, interest rate futures markets put the probability of the Fed holding rates at this month’s FOMC meeting at 78.4%, and the probability of a 0.25-percentage-point increase in the benchmark rate in December at 70.8%.
The question is what happens next year.
According to the FedWatch Tool, markets see a greater than 90% chance that the Fed will raise its benchmark rate at least once by the end of next year.
Williams’s forecast that another rate hike next year will be unnecessary differs sharply from this market outlook.
Eight of the 18 FOMC members also expect one more rate hike this year, followed by another hike next year.
The president of the New York Fed holds a key position, serving as the Fed’s window onto New York’s financial markets. Unlike the presidents of the other 11 regional Federal Reserve Banks, who take turns holding an FOMC vote for one-year terms, the New York Fed president has a permanent vote, like members of the Fed’s Board of Governors. As a result, Williams’s remarks carry more weight than those of other regional Fed presidents.

Williams emphasized that he would adjust his outlook to reflect economic conditions when next year comes, but based on current trends alone, he does not expect a need for further rate hikes next year.
The basis for this outlook is his assessment that so-called disinflation—a slowdown in inflation—is underway.
Williams said the Fed should focus on the “underlying trend” unfolding amid current price shocks stemming from energy and artificial intelligence (AI).
Williams, a longtime Fed veteran, said energy prices could continue to add to overall inflationary pressure, but expects that pressure to ease on a year-over-year basis going forward.
He also believes that tariffs have largely been absorbed into prices. His view is that tariffs have already pushed prices up and, unless they rise further, will no longer add to inflationary pressure.
Williams expects inflation next year to be generally “close” to the Fed’s 2% target. The personal consumption expenditures (PCE) price index, the Fed’s preferred measure of inflation, rose 3.4% in August from a year earlier, while the core index rose 3%.
He emphasized, “I still believe the forces driving disinflation are at work,” and said, “I judge that those fundamentals have not changed.” He added, “I am optimistic that inflation will decline by quite a lot next year.”

[email protected] Song Kyung-jae Reporter