Fed’s Williams Sees Rates Well Positioned to Tame High Inflation

New York Fed President John Williams. Photo by Betty Laura Zapata /Photographer: Betty Laura Zapata

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(Bloomberg) — Federal Reserve Bank of New York President John Williams said interest rates are well positioned to bring inflation back toward the central bank’s target. 

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“Given the elevated level of inflation, it is imperative that we restore it to our 2% longer-run goal on a sustained basis,” Williams said in the text of remarks he had been scheduled to deliver Thursday at an event in Jersey City. “The current stance of monetary policy is well positioned to do that.”  

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Williams called inflation “unquestionably elevated,” driven by tariffs, an energy shock from the Iran war and an investment boom in artificial intelligence. While the impact of tariffs has mostly played out and energy prices have dropped, he said, substantial risks remained.

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“The AI investment boom may push up prices more than expected,” he said. “And the global supply disruptions stemming from the conflict in the Middle East remain a source of risk to both the growth and inflation outlooks.”

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Fed officials left interest rates steady last week, though their latest rate projections showed almost half expect at least a quarter-point hike this year. Policymakers have pointed to apparent stability in the labor market and highlighted concerns over elevated price pressures. 

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Investors are now counting on tighter monetary policy by September. 

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Inflation jumped in April by the most since 2023, as a surge in energy costs kept price pressures stubbornly above the Fed’s 2% goal. Peace negotiations between the US and Iran remain unresolved, but oil prices have dropped substantially, signaling some relief for the inflation outlook.

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Williams sees inflation easing to 3.5% by year-end, and then continuing “on a glide path” toward 2%, reaching the target by 2028. Fading effects of trade tariffs should help ease inflation in the coming quarters, while shelter inflation should continue to slow, he said. Energy and goods prices should also stabilize if the conflict in the Middle East is resolved relatively soon, he said. 

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Balance Sheet

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In their post-meeting statement last week, Fed officials also signaled their commitment to holding an “ample” level of bank reserves to maintain stability in short-term lending markets.

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Williams said the current regime has proved “a very effective and flexible tool to support interest-rate control to the downside.”

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Williams cancelled his plans to appear at the conference, but the New York Fed released his remarks.

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