New York Fed President John Williams sees room for one more interest-rate increase in 2026, but he does not currently expect further hikes in 2027. Markets are positioned for a tougher path: futures pricing cited by CNBC placed roughly 90% odds on the federal funds rate ending 2027 at least half a percentage point above its current level.
That gap matters more than the headline forecast. Williams is a permanent voting member of the Federal Open Market Committee, yet his view is conditional rather than a promise. He said policymakers must keep watching an economy influenced by energy costs, artificial-intelligence investment and other shocks.
A forecast built on fading price pressure
Williams expects underlying disinflation to resume as the effects of tariffs and energy prices fade. In a May speech, he projected inflation near 3% in 2026 before returning to the Fed's 2% target in 2027. His latest comments preserve that basic mechanism even after higher energy prices complicated the near-term picture.
The current data are mixed. The Bureau of Labor Statistics reported that headline consumer inflation was 3.4% in August, while inflation excluding food and energy was 2.4%. Energy rose 16.3% from a year earlier and gasoline rose 27.4%, showing why headline inflation can remain elevated even as core inflation slows.
Williams is not alone inside the Fed. CNBC reported that eight of 18 policymakers who submitted 2027 forecasts expected one additional increase after another hike in 2026, leaving his view within the committee's majority even as it conflicts with futures pricing.
The market's real question
The disagreement is about persistence. If energy and tariff effects fade while core inflation remains contained, today's high expected policy path could move lower. If price pressure spreads into wages, services or inflation expectations, Williams' one-hike scenario would become harder to defend.
The September consumer-price report is scheduled for October 14, so no actual September CPI result was available when these comments were made. That release, followed by the Fed's meetings later in October and December, will show whether market pricing or Williams' disinflation thesis is closer to the incoming evidence.