Blurb: John Williams expects disinflationary forces to strengthen in the second half and persist through 2027
New York
New York Federal Reserve President John Williams said he expects inflationary pressures in the United States to ease gradually, but stressed that the central bank would act, including through interest-rate increases, if price growth fails to return towards its 2% target.
In an interview with Reuters, Williams said inflation could moderate if energy prices and trade-related pressures peak while the economy remains on a stable footing. He expects disinflationary forces to strengthen during the second half of the year and continue into 2027.
Williams said he is closely monitoring core inflation data to determine whether the economy is moving towards a sustainable return to the Federal Reserve’s 2% target by 2028.
The Federal Reserve’s preferred inflation measure rose 3.7% year-on-year in June, remaining well above the target. Inflation has not been at or below 2% for more than five years.
At its latest meeting, the Federal Open Market Committee kept the federal funds target range unchanged at 3.50% to 3.75%. Williams said he strongly supported the decision, describing the current policy stance as “well positioned.”
However, he added that if the economy does not move towards lower inflation, further monetary tightening would be appropriate. Financial markets have also increased expectations of a possible rate hike by the end of the year.
Williams acknowledged uncertainty surrounding energy prices, trade tariffs and the conflict in the Middle East but said inflationary pressures could ease quickly if conditions improve and shipping activity normalises.
He also said the Federal Reserve would make policy decisions based on its own economic assessment rather than market expectations.
On artificial intelligence, Williams expressed confidence that investment in the sector does not currently pose major financial-stability risks, noting that many companies involved have strong earnings and manageable debt levels.
Summary
- Fed’s preferred inflation measure rose 3.7%.
- Target range kept at 3.50% to 3.75%.
- Further monetary tightening remains possible.
- Markets expect a potential rate hike.
- Uncertainty surrounds energy and trade.