September 08, 2025 • 4 min read • Market News

My recap of this discussion on the economy, AI, and inflation.

Event Date: Thursday, 9/4

 

John Williams approached the podium with a Jerome Powell-ish demeanor. Soft-spoken, yet carrying a loud message.

I had the opportunity to sit in on last Thursday’s event hosted by the Economic Club of New York, featuring the President of the New York Fed (Williams) as speaker. Williams laid out a view of the economy, and below, I interpret (and oftentimes regurgitate) his message:

The U.S. economy is slowing, and the data proves it. Real GDP in the first half of the year came in at around 1.5%, well below the 2.5% pace from the previous year. This slowdown, Williams explained, is not just about interest rates. Reduced immigration, increased tariffs, and a lack of consumer confidence are all to blame.The combination lowers both demand and the productive capacity of the economy. 

In the labor market, the story is similar. The unemployment rate sat at 4.2% (though Friday’s announcement now pushes it up to 4.3%), and the Fed projects it to gradually rise to 4.5% by next year. Williams reminded the majority Gen-X/Boomer audience of the difficulties of the labor market for their own kids. Hiring for recent college graduates has slowed, citing artificial intelligence as a driver. In addition, payroll growth has softened. This is not because businesses are collapsing, but because they are remaining cautious. Employers remember the self-inflicted wounds as a result of pandemic-era layoffs, and many are choosing to hold on to workers rather than risk getting caught short again.

Much of this labor slowdown, he emphasized, ties directly to immigration shortfalls, which have capped workforce growth and, by extension, the natural speed limit of job creation. It’s a supply-side story that changes the interpretation of many traditional signals, and it merits more attention than it’s receiving. 

The immediate concerns lie with the consumer. Consumer credit is tightening, savings buffers are drying, and there's a growing risk that cautious households and businesses begin to pull back on spending in tandem. The American consumer still drives ~70% of the U.S. economy, and when that engine slows, momentum fades quickly. Investors can track consumer spending data presented by the Bureau of Economic Analysis here. 

Inflation, the big elephant that it is, still looms over everything. The Personal Consumption Expenditures (PCE) index—the Fed’s preferred inflation measure—was at 2.6% year-over-year in July. Core PCE, which strips out volatile food and energy prices, came in slightly higher at 2.9%. While not “panic” numbers, they still remain above target. And crucially, Williams pointed to tariffs as the most meaningful driver of inflation in the current environment.

The cumulative effect of enacted and announced tariffs has pushed the average effective tariff rate to 15–20%, up from just 2.25% earlier in the year. For context, tariff receipts as a share of imports rose from 2.25% to 10% between Q1 and July 2025. This increase has made its way into core goods inflation, where prices are rising significantly faster than trend. According to Williams, tariffs alone are expected to boost prices by 1–1.5% through the first half of next year.

He did, however, draw a sharp line between data and chaos, stating that these inflationary pressures are not spilling over. In fact, the New York Fed’s Global Supply Chain Pressure Index is near historical averages. So the inflation story, while not solved, is also not spiraling, and that matters for monetary policy.

Lastly, the conversation jumped to AI. Williams was quick to dismiss the notion that AI would serve as a short-term rescue. Unlike the many AI spokespeople we see on LinkedIn, his stance towards AI’s immediate impact on real productivity and output was a bit more tepid. He compared AI’s advent in the markets to that of electricity and computers. He coyly refused the notion that AI will bring immediate momentous change to markets. Instead, he believes the real economic impact of AI will take years, not months, to register the data.

If there was a final takeaway from the conversation, it was that the Fed is doing its job by holding the wheel steady in the face of a shifting economic climate. Policy won’t be driven by politics or panic, but will be dictated by what the data says about the dual mandate of maximum employment and price stability.

At Yieldwink, we’re seeing this as a sign of increased caution. Growth is slowing, but it’s doing so in a controlled way. Our philosophy has always been that great opportunities can be found in any market.