John C. Williams, president of the Federal Reserve Bank of New York, says he supports further interest rates cuts this year, even though inflation has moved away from the central bank’s 2 percent target in recent months. His rationale revolves around the labor market, where cracks have emerged.
What Mr. Williams wants is to protect those cracks from deepening further.
In an interview with The New York Times on Wednesday, Mr. Williams said he did not believe the economy was on the verge of a recession. But the slowdown in monthly jobs growth, coupled with other signs that companies are more hesitant to hire, warrants attention, he said.
The views of Mr. Williams are important given his role as president of the New York Fed, a position that confers a permanent vote on interest rates. He is also a close ally of Jerome H. Powell, the Fed chair.
Mr. Williams spoke at a fraught moment for the Fed, which is balancing dueling economic risks. On the one hand, Fed officials do not want to exacerbate the slowdown in the labor market. But they also want to avoid inadvertently stoking inflation, which has started to accelerate again because of President Trump’s tariffs.
Mr. Williams said the Fed had the flexibility to shore up the labor market because the inflation outlook did not appear as dire as it did earlier in the year. Mr. Trump’s tariffs have raised some consumer prices, Mr. Williams said, but he expects the impact on inflation to fade over time despite the president’s new import taxes on products like furniture and drugs. Those tariffs build on steep levies that Mr. Trump put on imports from dozens of countries on Aug. 7, in addition to sector-specific ones.
“The risks of a further slowdown in the labor market is something I’m very focused on,” Mr. Williams said. He later added that if the economy evolved as expected — inflation moving up to around 3 percent and the unemployment rate inching up beyond its current 4.3 percent — he would back “lower rates this year, but we’ll have to see exactly what that means.”
Mr. Williams indicated that a lapse in official government data because of the shutdown would not deter him from wanting to take action at the Fed’s coming meetings. The shutdown, which has stretched into its second week, has already delayed the September jobs report. The Bureau of Labor Statistics may also have to withhold the Consumer Price Index report that is due for release on Wednesday if lawmakers do not reach a deal by then.
Mr. Williams acknowledged that government statistics were the “gold standard of macroeconomic data.” But he said private-sector providers and surveys both from the Fed and from external sources like the Conference Board or the Institute for Supply Management were also informative.
“We have a reasonably good picture of what’s happening, especially around the things that matter the most to us, which is maximum employment and price stability,” he added, referring to the Fed’s goals of a healthy labor market and low, stable inflation.
Mr. Williams said that it was hard to predict how significantly the shutdown would drag down economic growth and that he was mainly focused on the possibility of cutbacks in government jobs, including at the state and local levels.
Fed officials lack official government data at a particularly bad moment, as they debate how quickly to lower interest rates after cutting them last month for the first time this year. Policymakers meet twice more this year, with the next gathering scheduled for Oct. 28-29.
Their quarter-point reduction last month, to a range of 4 percent to 4.25 percent, was framed as a “risk management” move, a description that Mr. Williams embraced on Wednesday. Like many officials — including Mr. Powell — he views the Fed’s policy settings as “modestly restrictive,” meaning borrowing costs are high enough to dampen economic activity but not torpedo it.
Consumer spending, which accounts for roughly 70 percent of the $23 trillion economy, has stayed relatively resilient, although much more so for wealthier Americans than for lower-income households. Companies may not be hiring much, but they are not firing workers, either, helping to keep the unemployment rate relatively stable. Stock markets have also soared to new heights, while government and corporate bond yields have fallen.
This backdrop has led some officials at the Fed to conclude that its policy settings are not restraining the economy all that much. They appear much more concerned about persistent price pressures and, as such, less inclined to lower interest rates further.
But Mr. Williams countered that a softening labor market would help to keep a lid on inflation, even if price pressures across the services sector have stayed sticky. He also stressed that stock markets were not a good representation of how restrictive interest rates were and instead could reflect “real world factors” like investors’ piling into bets on artificial intelligence.
“I don’t see any signs of second-round effects or factors that could be amplifying the effects of tariffs on inflation,” Mr. Williams said. “There’s more downside risks to the labor market and employment, and that is something that takes some of the upside risk off of inflation.”
He said it was appropriate to bring interest rates back to a “neutral” setting, which neither speeds up growth nor slows it down over time. Most officials estimate that level to be around 3 percent, or 1 percent when adjusted for inflation. But there are a range of views among Fed officials. Mr. Williams has previously estimated the inflation-adjusted rate to be between 0.75 percent and 1 percent.
The newest member of the Fed’s Board of Governors, Stephen Miran, recently argued that the neutral rate was closer to 0.5 percent, lowered by Mr. Trump’s immigration restrictions, the potential for tariff revenue to help pay down America’s debt and deregulatory efforts. That has become the basis for his support for interest rates that are roughly two percentage points lower than current levels, well out of step with other officials.
Mr. Williams did not convey any urgency to cut interest rates rapidly and made clear that the Fed was committed to returning inflation to 2 percent.
“We’re not losing track of that,” he said. “We still have our eye very much on inflation, but we want to make sure that we achieve both of our goals as best as possible.” That means getting inflation back to the target but also trying to “minimize the risk of the labor market cooling more sharply.”
He echoed Mr. Powell’s warning that there is “no risk-free path,” but said the Fed was trying to “broaden that path.”
Mr. Williams also addressed a string of attacks on the central bank by the president, who has been haranguing the Fed to lower interest rates substantially. Mr. Williams acknowledged that “political figures have their views” on the Fed as he emphasized the importance of its independence from the White House, adding that it was “really important right now for us to get our job done as best as we can.” Treasury Secretary Scott Bessent has also blamed the central bank for “mission creep” and for distorting financial markets with its quantitative easing program, which involved huge purchases of government bonds and other assets after the last two major financial crises.
Mr. Williams defended the use of these tools, which he said were just an “extension of monetary policy,” and warned that without them, the economy would have been worse off.
“The recovery would have been slower,” he said.
As part of his pressure campaign, Mr. Trump has also sought to exert more direct influence over the Fed by trying to pack it with people amenable to his policy views.
He was able to install Mr. Miran, who is taking only a temporary leave of absence from his role as one of the White House’s top economic advisers, after Adriana Kugler abruptly stepped down from the board in August. The president has since tried to force another vacancy by attempting to fire Lisa Cook over allegations that she committed mortgage fraud. The Supreme Court, which will hear arguments in January in Ms. Cook’s lawsuit opposing her removal, has allowed her to continue serving as a governor while her case is litigated.
Mr. Williams, who is 63, said he planned to stay in his role until mandated to retire in 2028.
Asked about Mr. Trump’s attempts to erode the Fed’s independence — as well as the scrutiny the central bank has faced for its nonconfrontational response — Mr. Williams emphasized that his focus was squarely on analyzing the data.
“We’re not political creatures,” he said.
Colby Smith covers the Federal Reserve and the U.S. economy for The Times.
The post Hiring Slowdown Worries Top Fed Official, an Ally of Powell appeared first on New York Times.
