New York Fed’s policymaker has a clear view on where the rate cycle ends — and futures traders have a different answer
John Williams, president of the Federal Reserve Bank of New York, said that one additional rate hike is warranted before year-end, but ruled out further increases in 2027. That stance puts him at clear odds with futures traders and a vocal faction within the Federal Open Market Committee (FOMC).
Williams named three forces lifting inflation above target: tariff effects that have largely passed through the system, energy price shocks rooted in geopolitical conflict, and the infrastructure surge powering the artificial intelligence (AI) boom.
Of the three, he said AI-driven demand is the dynamic he is monitoring most closely heading into 2027.
The rate path mortgage brokers need to watch
“I haven’t changed my view that it may be appropriate to have one more rate hike,” Williams told Bloomberg News.
“I don’t think at this time I have any reason to believe that we would need to do more.”
That view collides with where markets are positioned. CME FedWatch data as of October 13, showed roughly 90% odds the federal funds rate will end 2027 at least a half percentage point above its current target range of 3.75% to 4% — the product of the Fed’s first rate increase since 2023, issued in September.
The Mortgage Bankers Association (MBA) is also projecting a harder path. Chief economist Mike Fratantoni, senior vice president at the MBA in Washington, D.C., told the association’s annual convention in Chicago this month: “We think the Fed is going to be in a position where they have to hike a couple more times.”
"They've signaled pretty clearly now they're going to take October off right before the election, and so a hike in December, a hike sometime in the first quarter, that'll bring the Fed's target Fed funds rate above the level of inflation, which is really what you need to put sufficient pressure on it to move down in, to use the Fed's words, a timely fashion. But we think they'll hold at that level really through much of the forecast window," he said.
Craig Riddell of LoanLogics says some homeowners are turning to HELOCs and home equity loans with the expectation that rates will fall, creating risks if borrowing costs remain elevated longer than anticipated. https://t.co/3rtvWTQEtl
— Mortgage Professional America Magazine (@MPAMagazineUS) October 7, 2026
What the inflation data shows
Williams argued the underlying picture is more encouraging than headline prints suggest. The New York Fed’s multivariate core trend inflation gauge sits at approximately 2.3%, consistent with the Dallas Fed’s trimmed mean over the past six months.
Tariff effects are now largely in the year-over-year comparison base, he said, and energy prices, while currently elevated, are not expected to compound inflation through 2027.
“I still believe there’s disinflationary forces at play,” Williams said.
“My forecast for inflation for next year is inflation to come down quite a bit – overall inflation to be near our 2% target for the year as a whole next year, and that’s reflecting some of these factors I mentioned that the tariffs will be totally in the rearview mirror."
Bank of America’s hawkish three-hike scenario for 2026 — totaling 75 basis points before year-end — reflects the range of outcomes brokers and lenders are still navigating as the year draws to a close.
“This economy is being affected by lots of different influences,” Williams said. “We just have to keep watching the data.”
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