New York Fed President John Williams said he remains confident inflation will gradually resume its decline, arguing that the recent surge in energy prices is unlikely to derail the broader disinflation process. Speaking to Reuters on Friday, Williams said that if energy prices and tariffs have peaked and the economy remains resilient, “some of the big drivers that pushed up inflation… will not be at play as much,” while “some of the disinflationary forces that we’ve been seeing should reassert themselves.” He added that his personal forecast is for inflation to ease during the second half of this year and decline further next year.
Rather than focusing on temporary supply shocks, Williams emphasized that the Fed is watching whether underlying inflation is returning sustainably toward target. “I am… focused quite a bit on what are we seeing in the core inflation data over the next several months,” he said, adding that policymakers need evidence inflation is on “a disinflationary path consistent with us achieving our 2% inflation goal on a sustained basis by 2028.” Williams reiterated that the current policy stance is “well positioned” following last week’s decision to leave the federal funds target range unchanged at 3.50%-3.75%.
Still, Williams made clear that the Fed remains prepared to tighten policy again if inflation fails to cooperate. “If the economy is not on a trajectory that will bring inflation back down to 2%… it would absolutely be appropriate to act,” he said. While acknowledging uncertainty surrounding the Middle East conflict, Williams said he does not expect it to generate persistent inflationary pressure under his base case, assuming shipping disruptions eventually ease. He also stressed that the Fed will make its own policy assessment rather than follow financial market pricing, saying it would “absolutely not” be bound by investors’ expectations.
Key Takeaways
- Williams remains confident that inflation will continue to ease, expecting disinflationary forces to reassert themselves if energy prices and tariffs stabilize.
- The Fed’s primary focus has shifted to core inflation, with Williams emphasizing that the next several months of underlying inflation data will determine whether inflation is on a sustainable path back to the 2% target.
- He reaffirmed that current monetary policy is “well positioned” after last week’s decision to leave rates unchanged at 3.50%-3.75%.
- Despite his constructive inflation outlook, Williams made clear that further rate hikes remain on the table if inflation fails to move convincingly toward target.
- Williams views the inflation impact of the Middle East conflict as likely temporary under his base case, assuming shipping disruptions eventually ease.
- He also stressed that the Fed will not be guided by market pricing, reiterating that policy decisions will be based on the Fed’s own assessment of incoming economic data.
