By Matt Grossman

New York Fed President John Williams expects tariffs to lift inflation and chill economic growth, and said the Federal Reserve's monetary-policy stance is in "the right place to manage those risks the best we can."

Speaking at the Puerto Rico Chamber of Commerce in San Juan Friday, Williams said the economy began 2025 on a strong footing but that policy uncertainty is now dealing it a challenge.

"At times of great uncertainty, consumers may put off making big decisions like buying a home or car, and businesses may delay investing until they have a better sense of what the future holds," Williams said, according to prepared text of his remarks. "And when households and businesses cut back on spending, economic growth slows."

Williams said he expects:

-- Economic growth to slow to below 1%, from its 2.4% annualized pace in last year's fourth quarter.

-- Inflation of 3.5% to 4% ahead, compared with 2.5% in the latest reading from the Fed's preferred gauge.

-- Unemployment of 4.5% to 5%, up from 4.2% in March.

In the face of persistent inflation, the Fed held its target interest rate steady at 4.25% to 4.5% at its meetings in January and March after rate cuts at three straight meetings to finish 2024. With inflation still above target through February data, Williams said the Fed has been right to hold interest rates at a level that is modestly restraining the economy.

"The current modestly restrictive stance of monetary policy is entirely appropriate," he said.

New inflation data out this week indicated that consumer and producer prices declined in March, suggesting to Wall Street economists that the Fed's preferred price index was probably somewhere close to flat last month. Still, analysts are concerned that the Trump administration's steep new tariffs will push prices higher again.

"During times of turbulence and uncertainty such as these, well-anchored longer-run inflation expectations are critically important for ensuring sustained price stability," Williams said. "It is critically important to keep inflation expectations well anchored as we pursue our goals of maximum employment and returning inflation to our 2 percent longer-run objective," he added later in the speech.

Write to Matt Grossman at matt.grossman@wsj.com

(END) Dow Jones Newswires

April 11, 2025 12:13 ET (16:13 GMT)

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