Fed's Williams: It is critical for the US central bank to get inflation back to 2%

Agustin Wazne FXStreet

Federal Reserve (Fed) Bank of New York President John Williams said that he projects the jobless rate will come back down over the next few years at an event hosted by the New Jersey Bankers Association. Audience questions expected on Monday.

Key takeaways

I expect inflation to move to 2.5% in 2026, 2% in 2027.

I see tariffs as a one-off price adjustment, not spilling over into broader inflation.

Labor market cooling has been gradual process.

I expect 2026 GDP growth to hit 2.25%, well above the 2025 rate.

I expect US unemployment to be 4.5% by the end of 2025.

Labor market risks have risen as risks'to inflation have eased.

I expect active usage of the standing repo facility to manage liquidity.

Fed policy has moved toward neutral from modestly restrictive.

It is critical for the US central bank to get inflation back to 2%.

Monetary policy is well-positioned for what lies ahead.

Monetary policy is very focused on balancing jobs."

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

Author

Agustin Wazne

FXStreet

Agustin Wazne joined FXStreet as a Junior News Editor, focusing on Commodities and covering Majors.

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