Fed's Williams tells New York Times he backs more rate cuts this year

(Reuters) -New York Federal Reserve President John Williams backs more interest rate cuts this year given the risk of a further slowdown in the labor market, according to an interview published by the New York Times (NYT) on Thursday.

Williams, the Fed vice chair and a permanent voting member of the U.S. central bank's rate-setting Federal Open Market Committee, added, however, that the current labor market slowdown did not point to an imminent recession.

"My own view is that, yes, we would have lower rates this year, but we'll have to see exactly what that means," Williams told the newspaper.?

When asked if he anticipated two more 25-basis-point cuts to the Fed's policy rate, currently set in the 4.00%-4.25% range, Williams said, "when I approach future meetings, if we get information that is broadly consistent with my outlook - which is for inflation to move up a bit to around 3% and for the unemployment rate to gradually move up a little bit - then I think the path for policy should evolve the way we expect."

Williams noted that the Fed is trying to balance policy to lower inflation, which remains above the central bank's 2% target, while at the same time offering support for a job market that's exhibiting signs of weakness. With the current stance of monetary policy, "I do feel like we are well-positioned in terms of having policy that's modestly restrictive and that is helping us get to 2% inflation on a sustained basis."

Williams, however, added that it would be very damaging to the economy and the Fed's credibility if inflation were allowed to go well above the 2% level without the central bank taking steps to lower it. "But we need to do it in a way that does our best to minimize the risk of the labor market cooling more sharply."

The U.S. central bank cut its policy rate by a quarter of a percentage point at its September 16-17 meeting, a move Fed Chair Jerome Powell and others characterized as a way to leave policy tight enough to still restrain the economy and put downward pressure on inflation, while offering some support for the job market.

TARIFFS' IMPACT ON INFLATION LESS THAN EXPECTED

Williams' comments are in line with the minutes of the September 16-17 meeting that were published on Wednesday.

According to the minutes, Fed officials last month agreed that risks to the U.S. job market had increased enough to warrant a rate cut, but they remained wary of high inflation amid a debate within the central bank over how much borrowing costs were weighing on the economy.

The Fed's next policy meeting is slated for October 28-29, with another quarter-percentage-point rate cut anticipated by financial markets.

In his interview with the New York Times (NYT), Williams said President Donald Trump's trade tariffs were not putting as much upward pressure on inflation as many observers had expected.

"Tariffs have boosted inflation by maybe a quarter of a percentage point, up to a half point, in terms of the price level," he said, adding that "underlying inflation seems to be moving gradually lower toward 2%."

"I don't see any signs of second-round effects or factors that could be amplifying the effects of tariffs on inflation," Williams added.

He also noted that a changing economy is taking some pressure off of inflation. "I think there's more downside risks to the labor market and employment, and that is something that takes some of the upside risk off of inflation."?

Williams also said he cared deeply about the independence of the Fed, which has come under intense pressure from the White House this year to deliver deep rate cuts. President Donald Trump also has attempted to remove Fed Governor Lisa Cook from her position.

(Reporting by Michael S. Derby in New York and Shubham Kalia and Nilutpal Timsina in Bengaluru; editing by Sharon Singleton, Hugh Lawson, Mark Heinrich and Paul Simao)