New York Fed president "Monetary policy well positioned for 2026" [Fed Watch]

"Moved monetary policy to a neutral level at the December FOMC"

"U.S. economic growth to rebound to 2.25% next year"

Amid ongoing differences in views within the U.S. central bank (Fed) over monetary policy, John Williams, president of the Federal Reserve Bank of New York, assessed that "the current monetary policy is well positioned for 2026." He judged that, after last week's rate cut, there is sufficient policy room to balance employment and inflation risks.

Williams said in a speech at an event in Jersey City, New Jersey, on the 16th (local time) that "the Federal Open Market Committee (FOMC) has moved the somewhat restrictive stance of monetary policy to a neutral level," and added, "This action has put the policy environment in good order for 2026." He diagnosed that the recent risk of slowing employment has increased, while inflation risks have somewhat eased.

The Fed last week cut the policy rate by 0.25% percentage points, lowering the target range for the policy rate to 3.5~3.75%. This is the third rate cut this year. However, unusually, there were three dissenting votes on this decision. Two regional Fed presidents argued for holding rates steady, and Fed Governor Steven Myron said a 0.5% percentage point cut was necessary. Internal disagreement over the path of monetary policy has surfaced.

Williams predicted that U.S. economic growth next year will rebound to 2.25%, higher than the 2025 forecast (about 1.5%). He explained that fiscal support, favorable financial conditions, and investment related to artificial intelligence (AI) will help drive growth. He projected that inflation next year will fall to slightly below 2.5% and then reach the Fed's 2% target in 2027.

In the Q&A after the speech, he emphasized, "The current monetary policy is adjusted to be able to respond to either inflation rising again or the labor market becoming weaker than expected." He said that while it is difficult to predict trade policy or future economic conditions precisely, overall risks are balanced.

Williams also gave a relatively cautious assessment regarding the upcoming employment data. He said, "Not greatly different from recent trends, the pace of job gains will be gradual and signals of a labor market that is cooling gradually will appear." He added that it is still too early to discuss policy choices for the January FOMC meeting next year.

Meanwhile, on the same day, Susan Collins, president of the Federal Reserve Bank of Boston, said the decision to support the December rate cut was "a very close call." Fed Governor Steven Myron also reaffirmed his prior position that the current monetary policy remains excessively restrictive. Debate within the Fed over policy direction between slowing employment and price stability is likely to continue for some time.

New York=Park Shin-young, correspondent nyusos@hankyung.com