Fed's Williams says longer-term inflation expectations are stable and the labour market is not driving price pressures, but flagged energy uncertainty and supply chain stress as key risks.
Summary: Remarks by New York Fed President John Williams on May 14:
- Near-term inflation expectations have risen, but longer-term expectations remain stable and the Fed is not seeing signs of broader expectation problems
- Tariff effects appear to have largely passed through the economy, with no major second-round inflation impact observed so far
- The labour market is neither tight nor slowing sharply, and is not seen as a source of inflation pressure
- Emerging supply chain pressures and a highly uncertain energy price outlook are flagged as key risks
- Williams stressed that context matters when assessing inflation persistence above target
- Fed independence was defended as delivering better economic outcomes, with staff said to be focused on the central bank's core mission
Federal Reserve Bank of New York President John Williams offered a carefully balanced assessment of the US economy on Thursday, signalling that while inflation risks have not disappeared, the conditions for a policy move in either direction are not yet in place.
At the centre of Williams' remarks was the relationship between inflation and the labour market. He was clear that the job market is not a source of current inflationary pressure, describing it as neither tight nor in sharp decline. The labour market, in his view, has been showing signs of stabilisation, sitting in a state that is not hot but also not deteriorating in any meaningful way. That assessment matters because a slack labour market reduces the risk that wage growth feeds through into sustained price increases, one of the key channels through which inflation can become entrenched.
On inflation itself, Williams acknowledged that near-term expectations have moved higher, a development he said was not surprising given the current environment. But he was at pains to stress that longer-term inflation expectations remain stable, and that the Fed is not yet seeing evidence of significant second-round effects, where initial price rises feed into broader wage and price-setting behaviour. Tariff pressures, he added, appear to have largely worked their way through the economy already.
I'm sure her has seen the data this week:
- US April CPI 3.8% y/y vs 3.7% expected
- The April 2026 PPI report came in much hotter than expected and is adding to concerns that inflation pressures are becoming more entrenched
That relatively contained picture was tempered by two areas of concern. Williams pointed to emerging supply chain pressures as a developing issue, and was candid about the high degree of uncertainty surrounding the energy price outlook, a factor with the potential to shift the inflation trajectory materially in either direction. Context, he noted, matters when assessing how to interpret inflation running persistently above target.
The overall tone was one of watchful patience. Williams gave no indication that the Fed is preparing to move rates soon, nor did he close the door on action if conditions shift. With energy uncertainty unresolved and supply chains showing early stress, the Fed appears content to hold its position and monitor the data.
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Williams' assessment that longer-term inflation expectations remain anchored will offer some comfort to bond markets, though his caution on energy price uncertainty keeps the rate outlook murky. The acknowledgement of emerging supply chain pressures is a watch point for risk assets, particularly in energy-exposed sectors. A labour market described as neither hot nor deteriorating sharply gives the Fed little urgency to move in either direction, reinforcing the higher-for-longer narrative. Markets seeking a clear signal from the Fed will find little here to trade on.
NY Fed.
