New York Fed President Williams says inflation has peaked, rates ‘well positioned’

New York Federal Reserve President John Williams said Wednesday he sees multiple signs that inflation has peaked, allowing the central bank to keep interest rates steady despite market expectations of a rate hike in coming months.

In a speech to business leaders in his area, Williams listed five reasons why he expects the recent price increase to run its course.

“There are encouraging reasons to expect inflation has peaked and will decline in the coming quarters,” he said.

“I expect general inflation to fall to around a level.” [3.25%] “We will continue to move towards our 2 percent target by the end of the year and reach our target in 2028,” he said.

Inflation has soared this year and oil prices have soared after the United States and Israel attacked Iran in late February. War, along with persistent tariff effects and accelerating technology spending, were the main factors, Williams said.

But he sees signs that those factors and other inputs are easing.

Specifically, there should be no “significant additional impact” from the tariffs, as the expired duties are simply replaced by a tax. At the same time, he said the rise in oil “has probably peaked and will approach levels seen before the conflict.”

AI investment is also seen as another contributor, but Williams said “imbalances” “should diminish over time as more supply comes online.” He also noted that the labor market is not the source of inflation and concluded that inflation expectations are also “well anchored,” giving Fed policy breathing room.

“Growth in the economy is solid and trending, and the labor market is likewise solid and stable,” he said. “But with inflation remaining high, it is imperative that we bring it back to the Fed’s long-term target of 2 percent in a sustainable way. The current stance of monetary policy is well positioned to do this.”

However, markets still expect the Fed to increase interest rates in September. In June, Williams’ colleagues on the Federal Open Market Committee also narrowly predicted a quarter-point increase by the end of the year.

The remarks came a day after the Bureau of Labor Statistics reported that consumer prices fell an unexpectedly sharp 0.4% in June and the annual inflation rate fell to 3.5%. This was the largest one-month price decline since April 2020, but still left the Fed well below its inflation target.

Fed Chairman Kevin Warsh told the House Financial Services Committee on Tuesday that the price drop did not represent a “mission accomplished” moment. “That’s not my opinion,” he said.