The three leaders of the Federal Reserve: Monetary policy is “fully prepared” for 2026. Currently, inflation and employment risks are roughly balanced

The Zhitong Finance App learned that New York Federal Reserve Chairman John Williams said that after cutting interest rates last week, due to increased employment risks and reduced inflation risks, monetary policy is fully prepared for next year.

Referring to the Federal Open Market Committee (FOMC) in a speech prepared for an event in Jersey City, New Jersey on Monday, Williams said, “Monetary policy is very concerned with balancing these risks. To this end, the FOMC has changed its moderately restrictive monetary policy stance to neutral.” He added: “With these actions, our monetary policy is well positioned as we enter 2026.”

Since Federal Reserve officials cut interest rates by a quarter of a percentage point last week, there has been no doubt that policymakers' opinions are divided. This is the third time in a row that interest rates have been cut this year, bringing the Federal Reserve's benchmark interest rate target range of 3.5% to 3.75%.

The move faced objections from three policymakers, including two regional Federal Reserve presidents who prefer to keep interest rates unchanged, and Stephen Milan, a Federal Reserve governor who favors a sharp cut in interest rates by half a percentage point.

Williams said economic growth is expected to accelerate to around 2.25% next year (higher than the 2025 estimate of 1.5%) due to fiscal policy support, “favorable financial conditions” and investment in artificial intelligence. He also said that inflation is expected to fall slightly below 2.5% next year before reaching the Federal Reserve's 2% target in 2027.

In a question-and-answer session after the speech, the New York Federal Reserve Chairman hinted that the current monetary policy has been calibrated to deal with any of the central bank's key risks — whether it's excessive inflation or a weak job market.

roughly balanced

“This year, based on data and outlook, we cut interest rates in a way that we think would be a good way to roughly balance these two competing risks,” Williams said. “We can't know for sure what will happen with trade policy, inflation, or the economy next year, but I think we are fully prepared for it,” he said.

The day after his speech, the US Bureau of Labor Statistics will release key employment data, which was previously delayed for most of October and November due to the government shutdown.

Williams told reporters after the event that he expected the report to be “basically in line with what we have seen — relatively slow employment growth and signs of a gradual cooling of the labor market.”

He added that it is still too early to discuss possible options for the Federal Reserve's next policy meeting in January, but he is “very supportive” of last week's interest rate cut.

Boston Federal Reserve Governor Susan Collins, who also spoke on Monday, said her decision to support the December rate cut was a “difficult choice.”

In a LinkedIn post on Monday, Collins said: “Although my analysis in November favoured keeping the policy unchanged, by the time of the December meeting, the available information indicated a slight shift in risk balance.”

Director Stephen Milan also reiterated his view that current policies are still too restrictive. In an interview, he also revealed that he may stay with the Federal Reserve after his term expires until a new successor is confirmed.

Milan's term ends on January 31, but he has the right to remain in office until the US Senate confirms a replacement. Trump is expected to replace Powell with his chosen successor when Powell's presidency expires in May, and appoint this candidate to take over Milan's seat on the council. Milan is currently taking unpaid leave from his position as Chairman of the White House Economic Advisory Committee.