NY Fed chief sees US slowdown as Puerto Rico expands
Tariffs, reduced immigration and policy uncertainty are weighing on the U.S. economy, with growth slowing in 2025, John C. Williams, president and CEO of the Federal Reserve Bank of New York, told the Economic Club of New York this week.
“Growth in the first half of the year was about 1.5%, well below last year’s 2.5% pace,” Williams said. He cited “much lower immigration and the sizable increase in tariffs,” which he said are dampening both the supply and demand sides of the economy.
Williams noted that the labor market is cooling, with hiring, vacancies and quits moderating.
“The labor market is currently in balance and not adding to inflationary pressures,” he said, adding that payroll employment has slowed in recent months as fewer workers enter the labor force.
On inflation, Williams emphasized tariffs’ impact.
“Price increases for items that are exposed to higher tariffs have been well above what one would expect based on past trends and in the absence of tariffs,” he said. He projected that tariffs could raise prices by “between 1 and 1.5%, with these effects continuing through the first half of next year.”
July data showed headline inflation at 2.6% and core inflation at 2.9%, modestly higher than last year. Williams said long-term inflation expectations remain anchored.
The Federal Open Market Committee in July left the federal funds rate unchanged at 4.25% to 4.5%. “If progress on our dual mandate goals continues as in my baseline forecast, I anticipate it will become appropriate to move interest rates toward a more neutral stance over time,” he said.
Williams expects gross domestic product growth in 2025 to settle between 1.25% and 1.5%, with unemployment rising to 4.5% next year. Inflation, he projected, will range from 3% to 3.25% this year, ease to 2.5% in 2026 and reach the Fed’s 2% target in 2027.
Puerto Rico’s growth
Williams’ forecast of slowing U.S. growth paints a fragile national picture, but Puerto Rico’s steady expansion in manufacturing, tourism and services shows a more optimistic outlook.
The Puerto Rico Planning Board said real gross national product grew 2.1% in fiscal 2024, driven by a 2.4% increase in personal consumption, even as durable goods purchases fell nearly 8%. Current-price GNP rose 4.5% to $85.6 billion, while GDP reached $125.8 billion, or about $39,300 per capita. Unemployment averaged 5.5% during the year.
Manufacturing remains the island’s largest contributor, accounting for 44% of GDP. The sector expanded 7.8% in 2024, rising from $51.6 billion to $55.6 billion, fueled largely by pharmaceuticals and medical devices. Exports of manufactured goods hit $63.1 billion, nearly the entirety of Puerto Rico’s merchandise trade.
Real estate and rentals climbed 6.5%, while arts, entertainment, lodging and restaurants all posted double-digit growth.
Tourism also delivered record results. Discover Puerto Rico reported that in 2024, direct visitor spending reached $11.6 billion, with total economic impact topping $18 billion when indirect effects are included. The sector supported more than 91,000 direct jobs — about 10% of the workforce — and more than 141,000 jobs overall. Nonresident spending rose 15% year-over-year to $7.6 billion, generating $1.3 billion in tax revenue.
Travel bookings are trending upward, with group room contracts up 70% in the first quarter of 2025 and summer reservations tracking ahead of last year.
Energy transition
Energy remains Puerto Rico’s Achilles’ heel. The island still imports nearly all its power, with petroleum accounting for 60% of generation and renewables providing only a small share. The U.S. Department of Energy has committed $1.2 billion for solar and battery projects, expected to add 455 megawatts of storage across the island.
LUMA Energy, which manages transmission and distribution, has outlined a $4 billion modernization plan that includes nearly 1 gigawatt of renewable generation, 700 megawatts of storage, refurbished substations and expanded smart-meter deployment.
Yet challenges remain — earlier this year, federal officials redirected $365 million from solar initiatives to support oil-fired plants for immediate stabilization, underscoring the balance between reliability and long-term transformation.
