New York Federal Reserve President John Williams said Wednesday that he sees multiple signs that inflation has peaked, allowing the central bank to hold interest rates in place despite market expectations for a hike in coming months.
In a speech delivered to business leaders in his home district, Williams cited five reasons why he expects the latest price surge has run its course.
“There are encouraging reasons to expect that inflation has peaked and should edge down in coming quarters,” he said.
“I expect overall inflation to decline to around [3.25%] percent by year-end, then continue on a glide path toward our 2 percent goal in 2027 and land on target in 2028,” he later added.
Inflation spiked this year after the U.S. and Israel attacked Iran in late February, sending oil prices spiraling higher. Williams cited the war, along with lingering tariff impacts and accelerated technology spending, as the primary drivers.
However, he sees signs that those factors, plus other inputs, are easing.
Specifically, there shouldn’t be “significant additional impulse” from tariffs as expiring duties are merely replaced by new ones. At the same time, the oil spike has “likely peaked and will come down closer to levels seen before” the fighting, he said.
Artificial intelligence investment also is seen as another contributor, but Williams said “imbalances” should “recede over time as more supply comes online.” He also cited the labor market as not a source of inflation, and concluded that inflation expectations also are “well-anchored,” giving the Fed policy breathing room.
“Growth in the economy is solid and on trend, and the labor market is likewise solid and stable,” he said. “But with inflation running high, it is imperative that we restore it to the Federal Reserve’s 2 percent longer-run goal on a sustained basis. The current stance of monetary policy is well positioned to do that.”
Nevertheless, markets still expect the Fed to hike as soon as September. By a narrow margin, Williams’ colleagues on the Federal Open Market Committee in June also penciled in one quarter-percentage-point increase by the end of the year.
The remarks come a day after the Bureau of Labor Statistics reported that consumer prices posted an unexpectedly sharp 0.4% drop in June, taking the annual inflation rate down to 3.5%. It was the largest one-month price decline since April 2020, but still left the Fed well short of its inflation target.
Fed Chairman Kevin Warsh told the House Financial Services on Tuesday that the price drop did not represent a “mission accomplished” moment. “That is not my view,” he said.