Fed’s Williams Says Central Bank Could Cut Rates And Still Be Somewhat Restrictive

Federal Reserve Bank of New York President John Williams reportedly said on Wednesday that the central bank has scope to cut interest rates without shifting into an accommodative stance.

“The Fed could reduce interest rates and still be somewhat restrictive,” Williams said in an interview with CNBC. “If the economy evolves as expected, at some point interest rates need to be closer to neutral.”

Williams noted that inflation progress has slowed and it is difficult to separate the impact of President Donald Trump’s tariffs from other factors. He estimated that four to five tenths of a percentage point in core PCE could be tied to tariff effects, and emphasized he was watching services inflation “very carefully.”

On growth, Williams said the U.S. economy is “going through an adjustment process,” with GDP expected to expand at an annual rate of 1% to 1.5%. That marks a slowdown from earlier in the cycle but remains in positive territory. “This is a slowing economy, not a stalling economy,” he said.

The labor market, he added, remains solid but is cooling. The unemployment rate stands at 4.2%, historically low, though hiring has slowed. Wage growth is still consistent with moderating inflation, he said.

U.S. equities were trending lower ahead of market open on Wednesday. The SPDR S&P 500 ETF (SPY) edged 0.03% lower, the SPDR Dow Jones Industrial Average ETF (DIA) slipped 0.03% and the Nasdaq-100 tracking Invesco QQQ Trust (QQQ) fell 0.4%. Retail sentiment around QQQ on Stocktwits deteriorated to ‘bearish’ from ‘neutral’ territory over the past day.

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