New York Federal Reserve President John Williams said Wednesday that he doesn’t see longer-lasting inflation from the Iran War right now and that interest rates are in the “right place” now.
“Monetary policy is exactly in the right place,” Williams told Yahoo Finance in an interview. “I don’t see any need to raise or lower interest rates right now.”
When asked whether he thinks the Fed can look through higher energy prices at this point, Williams said he doesn’t expect those prices to increase dramatically next year and the year after, “so it’s more of a one-time kind of effect.”
He added the caveat that he expects the effects from energy prices and some tariffs to last through this year and into next year, and that he’s on the lookout for signs of inflation “getting more persistently embedded.”
“I’m not seeing that yet, but definitely there’s a risk of that given how much of a kind of a boost to inflation we’re seeing,” he said.
Williams said he expects inflation to peak in the next couple of months, but remain “pretty elevated” through the rest of this year.
Fed’s next rate move
Williams suggested that the Fed should drop language in its statement that signals its next move will be a rate cut. Three members of the Fed objected to retaining that language at the last meeting because they felt the central bank should signal that its next move could be a rate hike.
Williams said that the risks to inflation have increased “significantly,” in light of the Middle East conflict and a resilient economy, while the risks to unemployment have “edged down.”
“I don’t think forward guidance is particularly helpful right now in terms of trying to communicate monetary policy,” Williams said. “I don’t see an obvious argument that we should change interest rates, but I also don’t see an obvious kind of direction where we would go in the future.”
Williams said he still thinks that interest rates are “moderately” restricting the economy, based on where inflation will likely be next year — which he says is “significantly lower than now because the tariff and the energy price effect should have been behind us.”
“So I think about interest rates relative to that,” he said.
Williams said he has spoken with new Fed Chair Kevin Warsh about the economy, the different factors influencing the US and the global economy, and the factors influencing inflation.
“He’s very committed to doing his best and our best together to achieve those goals,” said Williams of Warsh.
Williams also said he has no plans to change how frequently he speaks, a potential point of difference with Warsh.
“I do believe that transparency and clarity is really what’s important,” he said. “I’m not particularly worried about how often someone speaks.”
