New York Fed president John Williams on Friday said he lowered his outlook for the US economy and raised his expectation for inflation this year on account of President Trump’s tariffs.
Williams now expects economic growth to slow this year to “somewhat below 1%” and inflation to rise to somewhere between 3.5% to 4%.
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He sees the unemployment rate rising to 5% due to the combination of a labor force slowdown resulting from reduced immigration and the uncertain effects of tariffs.
Those estimates are significantly different from the median estimates released by all Fed officials at their policy meeting on March 19, when policymakers predicted GDP of 1.7% this year, inflation rising by 2.8%, and the unemployment rate ending the year at 4.4%.
Williams discussed his estimates while giving a speech in Puerto Rico. Monetary policy, he said, “is in the right place to manage those risks as best we can” and that it’s “critically important to keep inflation expectations well anchored.”
“A key question is the extent to which this year’s higher inflation spills over into subsequent years and how that may affect expectations.”
The New York Fed boss made a case that despite the recent rise in short-term inflation expectations, longer-term expectations have remained “well anchored.”
But a fresh survey out Friday from the University of Michigan showed consumers’ expectations over the next five years have jumped to 4.4%, the highest level since 1991.
One-year inflation expectations jumped to 6.7% — the highest since 1981 — from 4.9% the month prior. Just three months ago, consumers had expected inflation of 3.3% over the next year.
Williams is not the only Fed official predicting weaker growth and higher inflation.
Boston Fed president Susan Collins told Yahoo Finance in an interview Friday that if Trump’s tariffs stay in place inflation will rise, perhaps above 3%, and economic growth will slow.
When asked whether the odds of a recession are rising, she said, “My current outlook again is not the more adverse one, but I wouldn’t rule it out.”
Collins said she is hearing and seeing in surveys that many firms expect it to take longer for tariffs to really factor in because they need to get an understanding of what their own pricing looks like.
“I am rethinking my initial view that it may only take a couple of months if the tariffs were to be kept at a certain level,” she added.
From businesses in her district, “What I hear is a pervasive wait-and-see approach as firms consider how to react to an environment that is highly uncertain.”
