John Williams, President of the New York Federal Reserve, highlighted concerns about the economic impact of the Trump administration’s trade policies during his recent remarks to the Puerto Rico Chamber of Commerce. He stated that the imposition of tariffs is likely to drive inflation higher this year, which could undermine long-term price stability. Williams emphasized the complexity of predicting the economy’s trajectory, especially given the unpredictable effects of these trade policies.
He noted that while the economy has had a strong start this year, the current trade environment could lead to unfavorable economic conditions by 2025. Williams indicated that the Federal Reserve needs to monitor economic data closely to inform their monetary policy decisions. He projected inflation levels to rise between 3.5% and 4%, a significant increase from the February year-over-year rate of 2.5%, which is measured by the Personal Consumption Expenditures (PCE) Price Index.
Furthermore, Williams revised his expectations for economic growth downward, forecasting that real Gross Domestic Product (GDP) growth will fall to somewhat below 1%. He also predicted a rise in the unemployment rate, estimating it could increase from the current 4.2% to a range between 4.5% and 5%. Despite short-term inflation expectations rising, Williams committed to returning inflation to the Fed’s targeted 2%, while also ensuring that long-term expectations remain stable.
He contrasted the current situation with the stagflation of the 1970s, stating that today’s economic struggles do not mirror that era’s high unemployment and inflation. With expectations of future Fed interest rate cuts, Williams noted the importance of maintaining a cautious approach to inflation, arguing that the current monetary policy positioning allows for adaptability in the face of evolving economic conditions.