Williams signals patience on rate cuts amid sticky inflation

Real GDP grew 2 percent in 2025 and is poised to maintain that pace for the rest of this year, supported by consumer spending and robust business investment, particularly AI-related outlays.

The labor market shows conflicting signs: hard data points to stabilization with a 4.3 percent unemployment rate and low payroll growth, while soft data suggests gradual slowing and increasing slack.

Overall inflation, measured by the Personal Consumption Expenditures price index, rose to 3-1/2 percent in March.

Williams expects inflation to remain elevated and above the FOMC's 2 percent longer-run goal for the next few quarters, largely due to higher tariffs and energy prices, which have contributed about a percentage point to the current figure.

Supply-chain disruptions have also re-emerged, echoing 2021 shortages.

At its meeting last week, the FOMC decided to maintain the target range for the federal funds rate at 3-1/2 to 3-3/4 percent.

Williams' base case projects inflation to be about 3 percent this year, before dropping to the 2 percent target in 2027 as the effects of tariffs and energy prices fade.

He anticipates real GDP growth between 2 and 2-1/4 percent this year and next, with the unemployment rate remaining in its recent range of 4-1/4 to 4-1/2 percent.

The Middle East conflict introduces significant and unpredictable risks, shaping the global economic outlook due to potential supply disruptions and higher energy prices.

The global economy's high integration means emerging supply-chain issues could have wide-ranging consequences, potentially leading to a larger and broader-based supply shock.