New York Fed’s Williams Says Inflation Should Ease, Current Rate Stance Is Appropriate

John Williams, president of the Federal Reserve Bank of New York, said he is optimistic inflation pressures will gradually ease and that the current interest-rate stance is “well positioned” to bring inflation back to target.

Reuters reported on August 3 that Williams made the remarks in an August 31 interview with the news agency. He said energy prices and trade tariffs have peaked, the main factors that fueled inflation over the past year and a half will no longer be at work, and disinflationary forces will become active again.

Williams said he is closely watching how core inflation data develop over the next few months and whether they are consistent with a path back to the Fed’s 2% target. He said he is also focused on whether the economy is on a disinflation path that can sustain 2% inflation through 2028. In his view, inflation will slow in the second half of this year and fall further next year.

Still, Williams said it would be “absolutely appropriate” to act if the economy is not on track to return inflation to 2%, indicating additional rate increases would be warranted if price pressures fail to ease as needed.

US consumer inflation remains well above 2% and has not fallen below that target in more than five years.

Last week, the Federal Open Market Committee left the federal funds target range unchanged at 3.50% to 3.75%. Williams said he “strongly supported” that decision.

Ahead of last week’s meeting, financial markets were rife with speculation that the Fed could still raise rates, given inflation’s persistent overshoot of the target.

The inflation measure the Fed uses for its 2% target rose 3.7% in June from a year earlier. Prices are still under upward pressure from supply shocks such as the war in Iran and Trump’s tariffs, as well as demand pressures including heavy corporate investment in artificial intelligence.

Rate-swap traders are now pricing in much of the chance of a Fed rate increase by year-end.

Williams acknowledged considerable uncertainty around the outlook and said it remains unclear when energy prices will decline if conflict in the Middle East resumes. Still, he said conditions could improve quickly if the conflict is resolved and maritime shipping resumes.

He also voiced optimism about the outlook for AI, saying recent swings in the sector were not surprising. “Volatility in asset prices is an inevitable feature of a world that is highly innovative and changing rapidly, and we’ve seen that before,” he said.

On borrowing by major technology companies to expand their businesses, Williams said current leverage levels are different from those that led to the financial crisis two decades ago. “Most companies are highly profitable, so for now I’m not very concerned about financial stability risks stemming from leverage,” he said.

Kim Jung-a, guest reporter, Hankyung.com, kja@hankyung.com