New York Fed’s Williams Says Inflation Has Peaked, Sees Scope to Hold Rates Steady

"Oil prices have likely peaked, tariffs won’t add further pressure, and inflation expectations remain stable"

"The current stance of monetary policy is appropriate for returning inflation to the 2% target"

"Inflation may slow to 3.25% by year-end and reach 2% in 2028"

John Williams, president of the Federal Reserve Bank of New York, said July 15 that he sees several signs inflation has peaked. He added that the Federal Reserve could hold interest rates steady even as markets expect rate increases in the coming months.

Williams has largely aligned with Fed Chair Jerome Powell and is often viewed as occupying the middle ground between hawks and doves. He may take a different view from Kevin Warsh, but as a permanent voting member of the Federal Open Market Committee, the New York Fed president is known for coordinating closely with the Fed chair.

Speaking to business leaders in his district on July 15, Williams said recent inflation has likely moved past its high point. He said this year’s inflation surge was driven by the war, lingering tariff effects and accelerated technology investment, but that he now sees five signs of easing.

First, tariffs are simply being replaced by new tariffs, meaning there is unlikely to be a major additional shock from that channel. Second, despite renewed tensions between the U.S. and Iran, the surge in oil prices has probably peaked and should move closer to prewar levels.

On artificial intelligence investment, which he identified as one source of inflation, Williams said rising supply should resolve imbalances over time. He also said the labor market is not a source of inflation and that recent inflation expectations remain stable. If the view that inflation has peaked becomes more widely shared within the Fed, it would give policymakers more room to maneuver.

"I expect overall inflation to fall to about 3.25% by the end of this year, then continue making steady progress toward the 2% target in 2027 and reach that goal in 2028," he said.

Williams said economic growth remains solid and is tracking trend, while the labor market is firm and stable. "But with inflation still high, it is essential to bring it durably back to the Fed’s long-run 2% objective. The current stance of monetary policy is appropriate to achieve that," he said, signaling that current rates are at an appropriate level.

Even so, markets still expect the Fed to raise rates as early as September. Williams and other FOMC members in June narrowly projected a 0.25 percentage-point rate increase by year-end.

His remarks came a day after the U.S. Bureau of Labor Statistics said the June consumer price index unexpectedly fell 0.4% from a month earlier, bringing annual inflation to 3.5%. That marked the biggest monthly drop in consumer prices since April 2020, though inflation remains well above the Fed’s target.

Separately, Fed Chair Kevin Warsh told the House Financial Services Committee on July 14 that a decline in consumer prices does not mean the job of controlling inflation is done, and that it is not his view.

Kim Jung-a, guest reporter