New York Federal Reserve President John Williams said another interest rate increase will likely be appropriate this year, while adding that he currently sees no reason to raise rates again in 2027. He cautioned, however, that future decisions will depend on the data.

Williams made the comments in an interview Bloomberg News on Tuesday, Oct. 13. “But you asked 2027, we’ll have to see,” he said. According to Bloomberg, another increase would place the Federal Reserve’s benchmark interest rate between 4% and 4.25%.

Williams supported the Fed’s September rate increase, describing it as “absolutely the right call.” He identified three factors that have driven inflation this year: tariffs, elevated energy prices linked to conflicts in the Middle East and between Russia and Ukraine, and demand generated by the artificial intelligence buildout.

He said the effects of tariffs are mostly “in the rearview mirror.” Energy prices, by contrast, have remained high and are feeding into other costs, including airfares and food.

Williams said the economy has remained resilient. In his view, risks to employment have declined somewhat, while inflation risks have increased somewhat. Unemployment is in the low 4% range, he said, while wage growth remains subdued and the economy is not overheating.

He expects inflation to decline next year and move close to the Federal Reserve’s 2% target by the end of 2027.

AI chip supply could take years to catch up

Williams said the AI buildout is producing a “pretty abrupt and large increase” in prices for chips and goods that use them. He also said there are early indications that construction labor costs are rising.

Asked whether AI supply and demand could reach balance within two years, Williams replied, “I think it’s going to take longer.” He said that view assumes demand continues as expected, adding, “and that’s a big assumption.”

Williams described AI investors as “relatively price insensitive” and said he does not expect higher interest rates to have a significant effect on AI spending — a notable stance, since rate increases are the Fed’s standard tool for cooling demand. Elevated chip prices are giving manufacturers strong incentives to build additional factories, he said, but expanding production will take time. He also expects future productivity gains from AI to help reduce inflation.

Williams described the stock market as “very buoyant.” Ten-year Treasury yields are near 5%, and he said higher borrowing costs are affecting home buyers and businesses.

The equipment shortage could also affect Bitcoin miners that are moving into AI, according to Cointelegraph. These companies are competing for the same chips and power equipment. Under the timeline Williams described, that competition would extend beyond the two-year window he was asked about.

Bitcoin miner IREN signed $2.8 billion in new AI cloud contracts in July. Anthropic also reached a $9 billion computing deal with Bitcoin miner Riot, according to a report.

Cointelegraph reported on Monday that miners pursuing AI projects already face substantial financing needs, while lenders have become more selective.

Source: Blockonomi