Fed's Williams sees one more hike "late this year" and inflation at 2% only in 2028

New York Fed President John Williams said on Tuesday that one more quarter-point increase in the federal funds rate "may be appropriate late this year," while also saying that after September's hike "there is no need for urgency, and we have time to gather more information." He expects inflation to finish 2026 at 3.5% and not to return to the Fed's 2% goal until 2028, according to the text of his speech in Buffalo.

Williams is vice chair of the Federal Open Market Committee and votes at every meeting, so his timing carries more weight than most Fed speeches.

Two headlines, one paragraph

The wires read the same speech two ways. Reuters led with "no urgency" for the next hike; Bloomberg led with "one more rate hike in late 2026." Both are in the speech, a few lines apart, and the more useful point is how they fit together. "No urgency" plus "late this year" reads as a hike that is not his base case for the October 28 meeting.

That is a different picture from the one real-money markets were painting earlier on Tuesday. Robinhood's prediction market had about a 68% chance on an October hike, as we reported this afternoon. Williams is one voter, and his wording leaves room for October if the data run hot, but a Fed vice chair saying the committee can wait makes a bet on an October move harder to defend.

What is driving inflation, in his account

Williams called 3.7% inflation "unquestionably too high" and pinned roughly a percentage point of the past year and a half's rise on three causes:

• Tariffs. The good news in the speech: he said tariffs are no longer adding to goods inflation, although new tariffs could change that.
• Energy. Conflict in the Middle East and "severe capacity constraints in oil refining" are raising crude prices and also widening the gap between crude and gasoline and diesel prices. He said he now expects "somewhat larger and longer-lasting effects" from energy.
• AI demand. He described a race between supply and demand for the goods the AI buildout needs, and said "so far, demand is winning." He added that those costs are starting to show up in prices of other products that use the same inputs.

On the other side, he said housing services inflation has slowed, the labor market is not adding to price pressure, and inflation expectations remain anchored.

His forecast, by the numbers

Who it hits

For borrowers, the question is less whether another hike comes than when. The federal funds target sits at 3.75% to 4% after September's increase, and the 2-year Treasury yield, which prices the next two years of Fed policy, closed Monday at 4.92%, according to Treasury data. That is already close to a full point above the top of the Fed's range, so much of the extra hike is in the price of fixed-rate borrowing today.

Floating-rate borrowers are different: they pay when the Fed actually moves. A quarter-point rise on a $250,000 business line of credit tied to prime adds about $52 a month in interest ($250,000 x 0.25% / 12). A contractor or distributor carrying that kind of balance through the winter faces the same monthly cost whichever meeting it comes at; a later move only buys a few more weeks at today's rate.

Williams was not alone on Tuesday. Governor Michael Barr said further adjustments are "likely to be needed," CNBC reported, a stronger lean than Williams gave. The next test for both comes Wednesday, when August PCE inflation lands with a set of methodology revisions; our preview is here.

Sources: Federal Reserve Bank of New York; CNBC; U.S. Treasury daily yield curve; Reuters and Bloomberg headlines; Robinhood prediction markets as reported by the Chronicle. This is market information, not investment advice.