Federal Reserve official John Williams said he remains optimistic that inflation pressures will gradually ease, but made clear the central bank would act if that progress fails to materialize. In an interview with Reuters last Friday, Williams said some of the main forces that pushed inflation higher over roughly the past year and a half should fade if energy prices and trade tariffs have peaked and the economy stays on solid footing. He also said some of the disinflationary forces seen earlier should reappear under that scenario.
Williams said he is paying close attention to core inflation readings in the coming months to judge whether they are consistent with inflation moving toward 2% and continuing lower, which he said is necessary to secure a long-run 2% inflation objective by 2028. He added that his own forecast calls for inflation to decline in the second half of this year and fall further next year. At the same time, he reiterated that the current interest-rate stance is in a good place to bring inflation back to target, while stressing that if inflation is not on track to return to 2%, it would be entirely appropriate for the Fed to take action, including raising rates.
Federal Reserve official John Williams said he remains optimistic that inflation pressures will gradually ease, but added that the Fed would not hesitate to raise interest rates if that outcome does not materialize and price pressures fail to return to target.
In an interview with Reuters last Friday, Williams said that if energy prices and trade tariffs have peaked and the economy remains solid, some of the main factors that pushed inflation higher over roughly the past year and a half should have less impact. He said some of the disinflationary forces seen earlier should then begin to show up again.
Watching core inflation in coming months
Williams said he is closely monitoring core inflation data over the next few months to see whether it is consistent with inflation moving toward 2% and continuing to decline, in line with achieving a long-run stable 2% inflation objective by 2028.
He also said his personal forecast is for inflation to decline in the second half of this year and to fall further next year.
Current rate stance remains in a good place
Williams reiterated that the current policy rate stance is in a good position to bring inflation back to target.
Still, he said that if inflation is not on a path back to 2%, it would be entirely appropriate for the Fed to act to put it back on that track.
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