Williams Sees One More Fed Rate Hike, None in 2027

NY Fed's John Williams says one more Fed rate hike is likely appropriate in late 2026 but none is needed in 2027, a view that diverges from market pricing.

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New York Federal Reserve President John Williams said on Tuesday that one more Fed rate hike may be appropriate before the end of 2026. He added that he currently has no reason to expect the central bank would need to raise rates again in 2027. In an interview with Bloomberg News, Williams said, "I haven't changed my view that it may be appropriate to have one more rate hike." He also said, "I don't think at this time I have any reason to believe that we would need to do more."

The remarks put the FOMC vice chair at odds with fed funds futures. Those contracts carry roughly 90% odds that the overnight rate ends 2027 at least half a percentage point above its current 3.75%-4.00% range.

What Did Williams Say About Fed Rate Hikes?

Williams said one more increase remains appropriate this year, and he sees no need to go beyond it. His outlook rests on disinflation. "I still believe there's disinflationary forces at play," he said, adding that "this is not an economy that is overheating overall."

He expects the effects of tariffs to fade and energy prices to stop adding to inflation, which would let overall inflation fall substantially toward the 2% target in 2027. Measures of underlying inflation have already moved lower, he said, and the labor market is not contributing to price pressure. He acknowledged that investment in artificial intelligence infrastructure and elevated energy costs are adding near-term pressure. He characterized those as specific shocks rather than evidence of broad demand overheating.

Where Does the Fed Stand Now?

The central bank raised its policy rate by 25 basis points in September to 3.75%-4.00%, in a unanimous 12-0 vote. Sixteen of 18 policymakers projected at least one additional increase before year-end, and four saw room for two.

Williams has framed the next step as measured. On September 24, at a London conference, he called another hike by year-end "a reasonable way of thinking about it." On September 29, he said that after the September action "there is no need for urgency, and we have time to gather more information." That language pushed CME FedWatch odds of an October increase from about 70% to below 50%.

Other officials have leaned more hawkish. Boston Fed President Susan Collins and Governor Michael Barr have both indicated that further policy adjustments would likely be needed to contain persistent inflation.

Why Does Williams Differ From the Market?

Williams differs from the market because traders are pricing a more persistent inflation problem than he describes. Futures show about a 79% to 81% chance the Fed holds at its October 27-28 meeting and roughly 19% to 21% odds of a move to 4.00%-4.25%. Bets on a December hike are near 85%, which matches the timing Williams has implied. The gap opens in 2027, where the market sees a policy path still sloping upward and Williams sees it flattening.

Energy is one source of the disagreement. Record September gasoline prices are expected to push headline consumer price inflation to about 3.6% to 3.7% year on year from 3.4%, while core inflation is forecast to hold near 2.4%. Williams treats the energy and tariff effects as temporary. A market looking at the headline figure sees less evidence of fading.

How Could This Affect Interest Rates and Treasury Yields?

Williams's view could cap the long end of the curve if it gains traction, because a flat policy path in 2027 reduces the compensation investors demand for holding long-dated debt. The 10-year Treasury yield reached an intraday high near 5.34% on October 1, the highest since 2002, and stood near 5.195% in the latest session, down about 2 basis points.

The path for interest rates now hinges on data. A core CPI reading of 0.3% or more for September would revive the case for an October move and lend weight to the market's 2027 pricing. A reading of 0.2% or less would support a hold until December and bolster Williams's disinflation argument.

Policy Communication

Williams also said that explicit forward guidance belongs to a "prior era." The Fed no longer signals its moves ahead of scheduled meetings, which leaves markets to infer direction from officials' speeches and the quarterly projections. His comments on 2027 are therefore a conditional assessment rather than a commitment, and he framed them as his view "at this time."

Outlook

The immediate question is whether the central bank raises rates in October or waits until December, with the September CPI report and the October 27-28 meeting as the next decision points. For 2027, Williams expects inflation to recede toward 2% and policy to stop tightening, while futures price at least two more quarter-point increases. Incoming inflation data will decide which view prevails.