After Powell was indicted, the Fed’s third-in-command spoke out: The Federal Reserve is not facing strong pressure to change interest rates.

After Powell was indicted, New York Fed President John Williams gave a speech on Monday, both defending Powell and making it clear that the current monetary policy stance is robust, with no need to adjust interest rates in the short term.

On Monday, Williams said in a speech at the New York Council on Foreign Relations that the current monetary policy is well-suited to support labor market stability and to bring inflation back to the long-term target of 2%.

He is optimistic about the economic outlook for 2026, expecting GDP growth of 2.5% to 2.75%, with the unemployment rate remaining stable. Williams expects inflation will peak at 2.75% to 3% in the first half of this year, with an annual average of 2.5%, before falling back to the 2% target by 2027.

These remarks come at a time when the independence of the Fed is under attack. Powell announced Sunday night that the central bank received a subpoena because of cost overruns on its headquarters renovation project, but he believes these legal actions are just a "pretext," with the real aim of influencing the Fed's rate decisions through political pressure or intimidation.

Williams said that while he couldn't comment on any legal investigations into the central bank or its officials, he warned against undermining the independence of the central bank. He said:

Attacking central bank independence often leads to very unfortunate economic consequences, including high inflation.

Clear Monetary Policy Stance, No Urgency to Cut Rates

Williams pointed out in his speech that the FOMC has "adjusted its moderately restrictive monetary policy stance to a level closer to neutral."

The Fed's No. 3 official emphasized that bringing inflation back to the 2% target "without imposing unnecessary risks on the labor market" is crucial. He added:

In recent months, as the labor market has cooled, downside risks to employment have increased, while upside inflation risks have decreased.

After the Fed lowered its target for short-term interest rates by 0.75 percentage points last year—setting the federal funds rate target range at 3.5% to 3.75%—it is generally considered to have entered a rate-hold phase.

At the policy meeting last December, officials expected one more rate cut this year, provided that the labor market remains stable and inflationary pressure eases as the impact of Trump's erratic tariff regime wanes. However, the latest labor market data show that, although inflation remains elevated, demand for jobs is still weak.

In a television interview last December, after the Fed’s policy meeting, Williams said he did not see any urgent need to cut rates again. Although inflation remains above target, the Fed is still facing pressure from Trump and his allies for sharp rate cuts. Several other Fed officials have expressed similar policy views in recent days.

Defending Powell and Warning of Risks to Independence

Addressing the "attacks" on Fed independence, Williams warned against undermining the central bank’s independence. He made it clear:

Powell has proven to be a person of impeccable integrity, leading the Fed through challenging times.

This statement is a strong endorsement of Powell. As reported by Wallstreetcn, Powell said in a written and video statement Sunday night that the investigation nominally relates to the renovation of Fed headquarters mentioned in his June congressional testimony, but its true intention is to influence Fed rate decisions through political pressure.

While some fear the incident could trigger severe financial market volatility, so far the impact has not been as severe as expected. Williams attributed the relatively calm market response to the uncertainty over how the political and legal disputes will play out. After his speech, Williams told reporters:

The market is reacting to what is happening and is changing its views as events unfold.

He believes that market volatility so far has been mild, stating that "the market has no certainty about how this will play out," which has limited larger changes in asset levels.

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