Fed’s Williams Says Interest Rates Are Well Positioned: Reuters

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(Bloomberg) — Federal Reserve Bank of New York President John Williams said interest rates remain well positioned as inflation should ease during the second half of the year.

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“My forecast personally is for inflation to come down in ⁠the second half of this year and come down further next year,” Williams said in an interview with Reuters published on Monday. “I think monetary policy currently is well positioned in where ​we are today to support that disinflationary path,” he added. 

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If inflation does not behave as expected, the New York Fed chief added, then the central bank would need to act. “If the economy is not on a trajectory that will bring inflation back down to 2% and we would, in my view there would be, it would absolutely be appropriate to act to get us on a trajectory that does bring inflation back to 2%,” he said. 

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The Fed left interest rates unchanged at their 3.5% to 3.75% range last week. Three officials dissented in favor of a quarter-point hike arguing staying put now would risk the need for more aggressive tightening in the future, as inflation remains persistent. 

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Inflation measures are giving policymakers some respite. The Fed’s preferred gauge of price pressures, the personal consumption expenditures index, fell 0.1% in June. A prior report of inflation also showed a similar decline, as gasoline prices declined. Oil prices fell again in recent days with news of a resumption of peace negotiations between the US and Iran. 

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Williams added that underlying measures of inflation excluding energy and food prices should ease, as the conflict in the Middle East ceases to add price pressures. In that scenario, the Fed could deliver on its 2% inflation goal by 2028. 

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“I am quite honestly focused quite a bit on what are we seeing in the core inflation ​data over the next several months, and is that consistent with a kind of a run rate of inflation moving towards 2% and really on a disinflationary path consistent ​with us achieving our 2% inflation goal on a sustained basis by 2028,” Williams said.

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“But I don’t anticipate, at least based on what’s happening so far in my base case, that we’re going to see continued inflationary push in the second half of the year or the next year from the from the conflict in the Middle East,” he said. “But that’s something that obviously could change depending on circumstances.”

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