Williams’ statements (Here, earlier) reinforces the higher interest rate stance for longer, with the Fed’s preferred measure of inflation running at 4.1% in May Now the 2% target has been postponed for a full year. Markets pricing in any near-term easing face direct opposition from a big voice at the Fed. Conflict in the Middle East remains the main swing factor: a quick resolution could ease commodity price pressures and push the inflation timetable forward, while prolonged disruption keeps upside risks high. The permanent repo facility signal indicates that the Fed is managing liquidity conditions effectively even while keeping interest rates steady.
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New York Fed President Williams pushed back the 2% inflation target to 2028, saying policy is well positioned as Middle East risks keep uncertainty high.
summary:
- New York Fed President John Williams said monetary policy was well positioned to reduce inflation, but he pushed the 2% target timeline to 2028 from his previous forecast of 2027, according to a text of his prepared speech.
- Williams said that inflation remains undoubtedly high and well above the FOMC’s long-term target, describing it as essential for the Fed to restore price stability on a sustainable basis, according to his statements.
- The Personal Consumption Expenditures Price Index, the Fed’s preferred measure of inflation, rose 4.1% year over year in May, according to data released Thursday morning US time. Williams expects inflation to calm to about 3.5% by the end of the year
- Williams said a rapid resolution of conflict unrest in the Middle East would help reduce inflation pressure, while ongoing supply disruptions due to the conflict remain a risk to growth and inflation expectations, according to his speech.
- The Fed left its interest rate target range unchanged at 3.5% to 3.75% at its last meeting, with new Chairman Kevin Warsh declining to provide forward guidance, according to a Fed statement.
- Williams expects the US economy to grow by about 2.25% during 2026 and the following two years, with the unemployment rate falling to 4% by 2028, according to his statements.
New York Fed President John Williams said inflation remains too high to consider easing monetary policy, backing away from his forecast of reaching the Fed’s 2% target by a full year through 2028 and suggesting the current stance of interest rates is adequate to do the job.
Speaking via a prepared transcript after the New York Fed said he would not deliver his remarks in person as originally planned, Williams described inflation as unquestionably high and well above the FOMC’s long-term target. Restoring price stability on a sustainable basis is imperative, he said, language that reinforces a strong commitment to keeping interest rates high for longer and signals little appetite for cuts until confidence in the inflation path is established.
Williams said he expects inflation pressures to ease in the coming quarters as the impact of tariffs on prices fades and housing inflation continues to decline. He added that a quick resolution of the unrest caused by the conflict in the Middle East would also help reduce price pressures caused by basic commodities and support a smoother path to lower inflation. However, this warning highlights how the near-term outlook remains contingent on geopolitical developments outside the Fed’s control.
The head of the Federal Reserve Bank of New York said he expects inflation to cool to about 3.5% by the end of the year, putting prices on what he described as a glide path to the target. In early May he was forecasting to reach the 2% target next year, but on Thursday he revised that timeline to 2028. The Fed’s preferred measure of inflation, the personal consumption expenditures price index, rose 4.1% year over year in May, a strong enough reading to support market expectations that the central bank may still need to raise interest rates at some point.
Williams pointed out that the US economy has shown resilience in the face of economic shocks resulting from the conflict, and growth is expected to reach about 2.25% during this year and the following two years. He expects the unemployment rate, which stood at 4.3% in May, to fall to 4% by 2028. However, he said there are still significant risks, pointing to AI-related investment as a potential upward driver for prices, and supply chain disruptions in the Middle East as a continuing source of uncertainty for both growth and inflation.
On the liquidity management side, Williams highlighted permanent repo operations as a key tool to reduce pressure on short-term interest rates, adding that the Fed will adjust its reserve management purchases as circumstances require.
These statements come after the Federal Reserve kept its interest rate target range unchanged at 3.5% to 3.75% at its last meeting.
