Williams frames neutral rate as tug of war between growth and demographics
The New York Fed president declined to give a directional call on where rates are headed next.
Published
John Williams, president of the Federal Reserve Bank of New York, said the so-called neutral rate, or R-star, is being pulled in two directions: higher trend growth pushes it up, while demographic shifts pull it down.
Williams did not say which force wins out, and offered no signal on where rates go from here. In separate remarks the same day, he said the era of explicit Fed forward guidance is over.
The framing lands as other officials sound more decided. Fed Governor Michael Barr has said more rate hikes are likely needed to hit the 2% inflation target, and that inflation risks now outweigh concerns about the labor market. He signaled as much last week, after the Fed's first rate increase since 2023. Chicago Fed President Austan Goolsbee has said bigger negative supply shocks reinforce a hawkish stance, and Richmond Fed President Thomas Barkin has said the Fed cannot rely on markets alone to hold inflation down, adding he wants this tightening cycle to resemble the mid-1990s adjustment rather than a prolonged campaign.
Williams's neutral framing does not add to or subtract from that pricing. For investors positioning around the pace of tightening, his remarks confirm that the near-term path still hinges on how inflation behaves, not on any new signal from the Fed's structural read on rates.