US Treasury yields eased slightly after an interview with New York Fed president John Williams, with two-year yields—most sensitive to the Fed funds trajectory—wiping out three basis points of gains. The reaction is understandable because Williams confirmed that another hike this year remains appropriate but saw no reason for additional steps after that. He does not believe the central bank will need to raise rates in 2027.

Williams's stance matches the median projection of Fed officials published after the September quarter-point hike. But the market is pricing significantly more. Fed funds futures imply a December increase and two more moves in 2027. Thus, the head of the New York Fed—one of the central bank's three senior officials with a vote—signaled that the market is pricing a firmer policy than he deems necessary. Bondholders benefit from that divergence because each abandoned extra hike supports their prices. Those who bet on further rises in yields lose out.

Williams's logic rests on disinflation. He sees signs that inflation will slow markedly and approach the Fed's 2% goal next year as tariff effects and the energy shock fade. He said core inflation measures have already eased and the labor market is not overheated. "But my view is this is not an economy that is overheating overall," John Williams said. In other words, he does not see broad inflationary pressure beyond specific shocks, and that is why he sees no reason to continue the hiking cycle.

The September decision, however, was not driven by that confidence. Williams acknowledged he firmly supported the hike after two factors changed the short-term outlook. Hopes for a resolution of the Iran conflict and falling oil prices proved overly optimistic, and the gap between crude and refined product prices widened significantly, so fuel became pricier. That is an important nuance because it shows how energy pushes short-term inflation even when the long-run picture remains subdued.

Artificial intelligence adds a separate uncertainty. Williams said demand for AI infrastructure exceeds supply and that mismatch will persist for some time, and he continues to watch the AI component of inflation closely. Over the long term, he expects AI to bring productivity gains and help lower inflation, but timing that effect is extremely difficult. He judges the neutral real rate to be about 1% or slightly higher and believes that under his scenario the Fed will not be far from neutral.

Importantly, there is no unanimous view inside the Fed. Beth Hammack of Cleveland and Lorie Logan of Dallas have made clear they think more than one additional step will be required to return inflation to 2%. Williams noted that market prices are useful information, and his own September remarks—which tempered expectations of an October hike—reflected only his view. The near test will be the CPI report due Wednesday, the last major data before the October 27–28 meeting. In my view that release will decide whose interpretation prevails.

Technical picture for EUR/USD

Buyers now need to think about reclaiming 1.1215. Only that would allow targeting a test of 1.1240. From there, one can reach 1.1275, but doing so without support from major players will be difficult. On the downside, I expect serious buying only around 1.1185. If nobody is there, it would be sensible to wait for a new low near 1.1155 or to open longs from 1.1125.

Technical picture for GBP/USD

Pound buyers need to take the nearest resistance at 1.3280. Only that would allow targeting 1.3310, above which a breakout would be fairly difficult. The farthest target is the 1.3340 area. On a decline, bears will try to seize control of 1.3255. If they succeed, a break of the range would deal a serious blow to bulls and push GBP/USD to a low near 1.3235 with scope to reach 1.3215.