NY Fed president expects price pressures to cool, but the central bank will act if they don't
Federal Reserve Bank of New York President John Williams said Friday he expects inflation to cool in the second half of 2026, but warned the central bank will raise interest rates if price pressures fail to return to its 2% target by 2028.
The Federal Open Market Committee (FOMC) voted to hold the federal funds target rate at 3.50% to 3.75%, its fifth consecutive hold in 2026, with Williams expressing strong support for the decision.
Speaking to Reuters in an interview on July 31, two days after the meeting, he said current policy is "well positioned" to bring inflation down on a gradual path.
"My forecast personally is for inflation to come down in the second half of this year and come down further next year," Williams told Reuters.
He added that if the economy fails to get on a path toward 2%, "it would absolutely be appropriate to act to get us on a trajectory that does bring inflation back to 2%... if policy needed to be adjusted to ensure that that happens, obviously that would be the right thing to do."
The Fed's preferred inflation gauge — the personal consumption expenditures (PCE) price index — stood at 3.7% year-over-year in June, well above the 2% target.
Williams said tariff effects on consumer prices have largely passed through and he does not expect continued inflationary pressure from the Middle East conflict in his base case, though he acknowledged that could change.
"I don't anticipate, at least based on what's happening so far in my base case, that we're going to see continued inflationary push in the second half of the year or the next year from the conflict in the Middle East," he said.
Dissents put a hike firmly on the table
Three FOMC members — Beth M. Hammack, Neel Kashkari, and Lorie K. Logan — dissented in favor of an immediate 25-basis-point increase, the first time since 2016 that three members have voted against the majority call.
Hammack, president of the Cleveland Fed, made her position clear in a post-meeting statement: "Inflation has remained stubbornly above 2% for more than five years, and I am not confident it will return to our objective on its own."
Treasury yields moved higher following the announcement, and Mike Fratantoni, SVP and chief economist at the Mortgage Bankers Association (MBA), called the split vote a clear signal of what is ahead.
The Fed’s July hold may be just the calm before the storm.
— Mortgage Professional America Magazine (@MPAMagazineUS) July 31, 2026
Veteran broker Melissa Cohn says the market’s sharp selloff signals investors were bracing for a hike — and that September is shaping up as the moment for the Fed to act.https://t.co/RczSsOrCqD
What the rate risk means for mortgage professionals
Samantha Shelton, mortgage broker and president of Align Lending, said ahead of the July 30 meeting that a hike would not have surprised her. "It also wouldn't surprise me if there was a little bit of a hike due to renewed inflation concerns, tied to energy prices and the Fed's desire to reinforce its commitment to price stability," Shelton told Mortgage Professional America.
Shelton also reminded brokers that the Fed's decisions and mortgage rate movements don't always align.
"Mortgage rates are driven primarily by the bond market and investors. They're not driven by the Fed overnight lending rate," she said.
"So even if the Fed didn't change rates today, mortgage rates could still move depending on how the market interprets [Kevin] Warsh's comments."
Williams addressed market speculation directly, saying the FOMC is not bound by pricing in futures markets. "We always have to come do our own analysis, do our hard work, assess all of the factors influencing the economy, the outlook," he said.
The next PCE release, covering July data, is scheduled for August 26, by the Bureau of Economic Analysis. That's the next key reading policymakers will use to assess whether inflation is genuinely on a downward path.
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