Williams Suggests Pausing Rate Hikes in October Amid Shift in Market Expectations

New York Federal Reserve President John Williams hinted at pausing rate hikes in October during his speech at the University at Buffalo on Tuesday. He stated that after the Fed's September meeting, where it raised rates by 25 basis points, 'there is no urgency to act right now; we have time to gather more information.'

Williams emphasized that monetary policy cannot prevent supply shocks, but it can reduce the risk of those shocks spreading into broader inflation. He noted that the Fed focuses on underlying trends rather than month-to-month data volatility.

The probability of an October hike in interest rates had been around 70% before Williams' remarks, but dropped to just above 50%. Despite this, traders still anticipate three quarter-point hikes by March next year.

Williams projects economic growth of 2.25% this year and expects inflation to return to target by 2028 as price pressures ease. However, Governor Michael Barr countered that higher tariffs and the conflict in Iran mean the Fed may need multiple additional hikes.