TLDR
- New York Fed President John Williams said one more interest rate hike this year will likely be appropriate.
- He said he sees no reason at this time to raise rates again in 2027, but the data will decide.
- Williams said AI chip supply could take more than two years to catch up with demand.
- He expects inflation to move close to the Fed’s 2% target by the end of 2027.
- Bitcoin miners moving into AI could face tougher competition for chips and power equipment.
New York Federal Reserve President John Williams said one more interest rate increase will likely be appropriate this year. He made the comments in an interview with Bloomberg News on Tuesday, Oct. 13.
Williams also said he sees no reason at this time to raise rates again in 2027. “But you asked 2027, we’ll have to see,” he said.
Another hike would put the Fed’s benchmark rate between 4% and 4.25%, according to Bloomberg. Williams supported the Fed’s rate increase in September and called it “absolutely the right call.”
Why Williams Backed the September Hike
Williams pointed to three drivers of inflation this year. They are tariffs, high energy prices tied to conflicts in the Middle East and between Russia and Ukraine, and demand from the AI buildout.
He said tariff effects are mostly “in the rearview mirror.” Energy prices, however, have stayed high and are passing into other costs such as airfares and food.
Williams said the economy has proven resilient. He said risks to employment appeared somewhat lower, while risks to inflation appeared somewhat higher.
Unemployment is in the low 4% range, according to Williams. He said wage growth remains subdued and the economy is not overheating.
He expects inflation to come down next year. He said it should move close to the Fed’s 2% target by the end of 2027.
AI Chip Supply May Take Years to Catch Up
Williams said the AI buildout is causing a “pretty abrupt and large increase” in prices for chips and goods that use them. He also sees early signs of higher labor costs in construction.
Asked if AI supply and demand would balance within two years, Williams said, “I think it’s going to take longer.” He added that this assumes demand continues as expected, “and that’s a big assumption.”
He said AI investors are “relatively price insensitive.” He does not expect higher rates to have a deep effect on AI spending.
Williams said high chip prices give makers strong reasons to build more factories, but that will take time. He also expects productivity gains from AI to help lower inflation in the future.
On markets, Williams said the stock market is “very buoyant.” Ten-year Treasury yields are near 5%, and he said higher borrowing costs are affecting home buyers and businesses.
A shortage of AI equipment could affect Bitcoin miners that are moving into AI, according to Cointelegraph. These companies compete for the same chips and power equipment.
Miner IREN signed $2.8 billion in new AI cloud contracts in July. Anthropic also struck a $9 billion compute deal with Bitcoin miner Riot, according to a report.
Cointelegraph reported on Monday that miners pursuing AI projects already face large financing needs. Lenders have also become more selective.
