The US Federal Reserve can still lower interest rates in the “near term,” a senior central bank official said Friday, shortly after an employment report fanned expectations that more reductions might not be imminent.
“I still see room for a further adjustment in the near term,” to move the policy stance closer towards neutral, New York Fed President John Williams told a conference in Chile.
On Thursday, a delayed report on how the US jobs market fared in September showed that hiring was stronger than anticipated even as unemployment crept up.
This added to market expectations that the Fed might wait longer to cut rates as it focuses on its inflation fight, dampening hopes of a December reduction.
But Williams said that he still sees potential for the bank to ease rates, even as the Fed’s progress in lowering inflation to its two-percent goal has “temporarily stalled” after President Donald Trump’s policy changes in trade and elsewhere.
Since returning to the presidency in January, Trump has imposed wave after wave of new tariffs on goods from US trading partners — and on sector-specific imports ranging from steel to autos.
“My estimate is that increased tariffs have contributed about one half to three quarters of a percentage point to the current inflation rate,” said Williams.
But he does not see signs that tariffs are contributing to “second-round or other spillover effects on inflation.”
Williams said that he expects the impact of tariffs on inflation will play out for the remainder of this year and in the first half of 2026. Inflation should thereafter “get back on track” towards two percent in 2027.
Following his remarks, traders shifted their expectations towards a third consecutive rate cut in December, according to CME Group’s FedWatch tool.
They now assign a 68.9 percent probability to a 25 basis points reduction, after leaning the other way a day earlier.
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