Tariffs are expected to have a one-time impact on prices, with the effects fully realized in 2026, according to John C. Williams, president and CEO of the Federal Reserve Bank of New York. Williams made these remarks at a New Jersey Bankers Association event at the Liberty Science Center in Jersey City.
Williams predicted that inflation will fall below 2.5% in 2026 and is likely to decrease further to 2% by 2027. He also said that while unemployment rates may rise slightly, they are expected to decline gradually over the coming years alongside above-trend GDP growth.
He noted that job growth has been weak and unemployment increased in 2025, including in Northern New Jersey. Despite this, Williams stated, “So, after a year of uncertainty (2025), we will be starting 2026 from a place of resilience. But, as 2025 has shown, the road may shift in unpredictable ways.”
Discussing tariffs’ impact on inflation for 2025, Williams explained that while trade policies led to higher inflation and slowed progress toward the Federal Open Market Committee’s goal of long-term 2% inflation, their effect was “more muted and drawn out than I originally anticipated.” He added, “While it is not possible to precisely measure the effects of trade policy actions, my estimate is that they have contributed around one half of a percentage point to the current inflation rate.”
Williams addressed how economic challenges such as inflation and geopolitical events have affected both New Jersey and the broader US economy. He told journalists that manufacturing, trade, and financial services are important sectors for regional growth: his “expectation is we’ll have some tailwinds behind this for new growth next year (2026), and New Jersey’s economies are very much centered on the industries that I think will share [in the growth.]”
Williams acknowledged unequal benefits from recent economic gains: while technology sectors and stock markets perform well, many Americans continue to face difficulties with healthcare costs and housing affordability. He described this situation as a “K-shaped economy,” noting “a lot of people are struggling to make ends meet.”
In response to questions about whether these struggles could negatively affect overall economic health, Williams said: “I think it just shows that the strength of underlying economy, or the momentum of growth, is not as solid as maybe the GDP number suggests, at least for this group [of people]. In other words, if the economy took a turn for the worse, in terms of jobs or earning power, it would hit this very large group of families pretty hard, and could have a negative effect on their standard of living but also in terms of the economy. There’s just not as much potential resilience for these families and households.” He continued: “What’s striking is that the labor market is pretty good. Unemployment is relatively low. Real earnings had picked up after the pandemic. So it’s not like we are seeing deterioration today but I think there’s just more of a downside risk in there.”
Williams also discussed artificial intelligence (AI) and its influence on employment trends. While firms are not yet laying off significant numbers due to AI adoption now, he said companies remain cautious about hiring into roles susceptible to automation; many businesses plan retraining efforts for existing workers.
He stated: “[Firms] also mentioned that they do expect layoffs in the future from AI where AI is replacing some types of work.” Williams added: “We’ll definitely want people who can use AI to be more productive rather than do things that AI can do more easily or more quickly.”
On productivity gains from AI investment he commented: “The last big productivity boom we had in our lives ran from 1995 to 2005 [and] was only a decade,” adding “It was great; it was strong productivity growth.”
Concluding his address regarding monetary policy direction at the Federal Reserve he told attendees: “In assessing the future path of monetary policy my views as always will be based on evolution of totality of data economic outlook and balance of risks to achievement our maximum employment price stability goals We must be ready adjust our route as needed reach our destination.”
During his visit yesterday Williams also met with government officials about regional economic activity; spoke with organizers preparing for the upcoming FIFA World Cup—discussing its potential local impact—and visited Newark business leaders as well as community development groups focused on housing affordability food insecurity financial health mental health issues; he additionally met pharmaceutical industry representatives regarding their contributions within New Jersey.
