NY Fed's John Williams: "Unquestionably too-high" inflation may soon subside

While inflation is "unquestionably too high," there are reasons to believe it may have crested and should soon start subsiding, and U.S. monetary policy is well positioned to guide inflation back to the Federal Reserve's target, New York Fed President John Williams said on Wednesday.

"Inflation is unquestionably too high at about 4%, well above the (Federal Open Market Committee)'s longer-run goal of 2%," Williams said in remarks prepared for an event in ‌New York.

Williams pointed ⁠to ⁠higher tariffs, supply chain disruptions and energy price spikes arising from the Middle East war and robust business investment in artificial ​intelligence technologies as the main forces pushing inflation higher in the last year.


"These three factors together have driven inflation over ​the past year," Williams said. "But there are encouraging reasons to expect that inflation has peaked and should edge down in coming quarters." Williams laid out half a dozen reasons for his optimism, including expectations in his ​view that tariff-related price increases have largely played out; shelter ⁠inflation should remain on ‌a downward trajectory; oil prices have likely peaked; supply-demand imbalances from the ​AI build-out should ​recede; the labor market is not adding to inflation pressures; and inflation expectations remain ⁠well anchored.

"I expect overall inflation to decline to around 3.25% ​by year-end, then continue on a glide path toward our 2% goal ​in 2027 and land on target in 2028," he said.

Williams also said the job market appeared to have stabilized and he expected the unemployment rate to gradually descend to 4% in 2028 from the current 4.2%. The remarks largely echoed Williams' recent optimism for cooling inflation.

Last week he said he had grown more optimistic that overall high levels of inflation would ease, in part due to energy prices ‌that were then declining amid optimism for a resolution of the Middle East war. Since then, however, hostilities have flared again and oil prices - and costs for related ​energy products - ​have risen sharply.

The decline in energy ⁠prices last month powered a softer-than-expected reading of consumer inflation in June, potentially offering Fed officials some breathing room as they prepare to gather for their next policy meeting on July 28-29. At last month's ​meeting - the first convened by new Chairman Kevin Warsh - the Fed again left its policy rate in the range of 3.50% to 3.75% where it has sat since December.

Projections from policymakers portray a committee evenly divided between those who see no need to raise rates this year and those who see at least one 25 basis point hike by year end, and rate futures markets are positioned for an increase.