Williams Says Fed Funds Rate Is Appropriate
Federal Reserve Bank of New York President John Williams believes the Fed's current interest rate stance is at the right level to bring inflation back toward its 2% target. This statement was made even though demand driven by investments in artificial intelligence (AI) is starting to exert new pressure on inflation.
Williams said AI investments have the potential to support productivity growth in the coming years. However, for now, the economy is in a race between available supply and a rapid surge in demand.
While inflation remains too high, Williams sees strong reason to expect it to have peaked and could decline in the coming quarters. He believes tariffs will not put significant additional pressure on consumer prices, housing inflation is still declining, and energy prices appear to have peaked.
Williams expects inflation to hover around 3.25% by the end of this year, before gradually declining toward the Fed's 2% target in 2028. He is also optimistic that inflationary pressures from AI investments will ease as supply increases, although the magnitude and duration remain highly uncertain.
Williams' statement came after June inflation data showed a surprising decline, primarily due to weakening energy prices. However, he cautioned against reacting too quickly to just one month's data, as the Fed still needs to see whether the trend continues into the following months.
As for the market, Williams' comments signal that the Fed is in no rush to raise interest rates in July, but is also not ready to declare inflation completely safe. This stance could keep stocks and gold supported by expectations of more stable interest rates, but the dollar and yields could still hold up if subsequent inflation data strengthens. (arl)
Source: Newsmaker.id
