New York Federal Reserve Bank President John Williams said interest rates are in a favorable position to bring inflation back to the central bank’s target level.
Williams stated in a speech prepared for an event scheduled to take place Thursday in Jersey City: “Given persistently high inflation, we must continue working to bring inflation back to our 2% long-run target. The current monetary policy stance is fully capable of achieving this goal.”
Williams said inflation is “undoubtedly high” due to tariffs, energy shocks from the Iran war, and a surge in investment in artificial intelligence. He noted that although the impact of tariffs has largely faded and energy prices have declined, many risks remain.
He said, “The artificial intelligence investment boom could push prices higher than expected. Additionally, global supply chain disruptions caused by the Middle East conflict remain a risk to economic growth and inflation outlooks.”
Federal Reserve officials held interest rates steady last week, but their latest rate forecast shows that nearly half of them expect at least a 25-basis-point increase this year. Policymakers noted that the labor market currently appears stable and emphasized concerns about persistently high price pressures.
Investors are currently hoping for a tighter monetary policy to be introduced in September.
Inflation surged in April, marking the largest increase since 2023, as rising energy costs kept price pressures well above the Federal Reserve’s 2% target. Although peace talks between the U.S. and Iran have yet to make progress, oil prices have fallen sharply, signaling some easing in inflation outlook.
Williams expects inflation to fall to 3.5% by year-end, then continue its “steady” decline to 2%, reaching the target level by 2028. He noted that the fading impact of trade tariffs will help ease inflation in the coming quarters, while housing inflation is also expected to keep slowing. He added that energy and commodity prices should stabilize if the Middle East conflict is resolved promptly.
In last week’s post-meeting statement, Federal Reserve officials also said they were committed to maintaining “ample” levels of bank reserves to support the stability of short-term lending markets.
Williams said the current mechanism has proven to be “a very effective and flexible tool for supporting interest rate easing.”
