Fed’s Williams Says Holding Rates Steady ‘Entirely Appropriate’
Federal Reserve Bank of New York President John Williams said it’s “entirely appropriate” for officials to hold interest rates steady while they analyze the full impact of policy changes on the jobs market and inflation.
“Maintaining this modestly restrictive stance of monetary policy is entirely appropriate to achieve our maximum employment and price stability goals,” Williams said Tuesday at an event in Albany, New York. “We need to be vigilant in analyzing the totality of the data to see how conditions evolve,” he added.
The US central bank left interest rates steady last week, saying there’s still high uncertainty about how a set of aggressive policy changes, particularly around trade, will shape the economy and impact consumer prices. Most Fed officials foresee higher unemployment and inflation, but remain divided on the path for interest rates.
Williams said he expects unemployment to rise to around 4.5% by December, following a drop in immigration flows that will push real gross domestic product to “just over” 1% this year. An aggressive set of tariffs is likely to boost inflation to around 3%, he added.
Williams said Fed officials will monitor incoming data over the next few months to help them understand the impact of tariffs on the economy.
“We’ve seen some increases” in prices of some imported goods already, Williams said, adding that is likely contributing “maybe a quarter of a percentage point to inflation.”
“But it’s still early days,” especially given that many of the levies were paused, and some significantly lowered, he said. “I think we’re going to still see tariff effects on inflation for the rest of this year, maybe into next year.”
Williams said he expects consumer price increases to gradually moderate to the bank’s 2% goal over the next two years as the impact of the levies fade, adding that inflation expectations remain stable and well-anchored.
Earlier on Tuesday, Fed Chair Jerome Powell signaled officials are in no rush to lower interest rates because “for the time being,” monetary policy is well positioned to wait for policymakers to fully understand the impact of tariffs to the economy.
Economic data so far have shown limited impact from tariffs. Fed Governors Christopher Waller and Michelle Bowman have pointed to that dynamic, among other factors, in arguing the Fed could cut as soon as its next meeting in July.
Source : Bloomberg
