Williams's remarks (here, earlier) reinforce a higher-for-longer rate posture, with the Fed's preferred inflation gauge running at 4.1% in May and the 2% target now pushed out a full year. Markets pricing any near-term easing face a direct pushback from a senior Fed voice. The Middle East conflict remains the key swing factor: a swift resolution could ease commodity price pressure and pull the inflation timeline forward, while a prolonged disruption keeps upside risk elevated. The standing repo facility signal indicates the Fed is actively managing liquidity conditions even as it holds rates steady.
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NY Fed chief Williams delayed his 2% inflation target to 2028, saying policy is well positioned as Middle East risks keep uncertainty elevated.
Summary:
- NY Fed President John Williams said monetary policy is well positioned to bring inflation down, but pushed his 2% target timeline back to 2028 from his earlier 2027 forecast, according to his prepared speech text
- Williams said inflation remains unquestionably elevated and well above the FOMC's longer-run goal, calling it imperative that the Fed restore price stability on a sustained basis, per his remarks
- The PCE price index, the Fed's preferred inflation gauge, rose 4.1% on the year in May, per data released Thursday morning US time; Williams sees inflation cooling to around 3.5% by year-end
- Williams said a swift resolution of Middle East conflict disruptions would help lower inflation pressure, while ongoing supply disruptions from the conflict remain a risk to both growth and inflation outlooks, per his speech
- The Fed left its rate target range unchanged at 3.5% to 3.75% at its most recent meeting, with new Chair Kevin Warsh declining to offer forward guidance, per the Fed statement
- Williams sees the US economy growing around 2.25% over 2026 and the following two years, with the unemployment rate easing to 4% by 2028, per his remarks
Federal Reserve Bank of New York President John Williams said inflation remains far too elevated to consider easing monetary policy, pushing back his expectation of reaching the Fed's 2% target by a full year to 2028 and signalling that the current stance of rates is appropriate to do the job.
Speaking via prepared text after the New York Fed said he would not deliver his remarks in person as originally planned, Williams described inflation as unquestionably elevated and well above the FOMC's longer-run goal. He said restoring price stability on a sustained basis is imperative, language that reinforces a firm commitment to holding rates higher for longer and suggests little appetite for cuts until confidence in the inflation trajectory is firmly established.
Williams said he expects inflation pressures to moderate in coming quarters as the one-off price impact of tariffs fades and as housing inflation continues to ease. A swift resolution of the disruptions stemming from the Middle East conflict would also help, he said, lowering commodity-driven price pressures and supporting a smoother disinflation path. That caveat, however, underscores how much of the near-term outlook remains contingent on geopolitical developments outside the Fed's control.
The New York Fed chief said he expects inflation to cool to around 3.5% by year-end, placing prices on what he described as a glide path back to target. In early May he had expected the 2% goal to be reached next year, but on Thursday he revised that timeline to 2028. The Fed's preferred inflation measure, the personal consumption expenditures price index, rose 4.1% on the year in May, a reading strong enough to support market expectations that the central bank may still need to raise rates at some point.
Williams noted that the US economy has shown resilience against the economic shocks stemming from the conflict, and he expects growth to track around 2.25% across this year and the two years following. He sees the unemployment rate, which stood at 4.3% in May, easing back to 4% by 2028. Nonetheless, he said substantial risks remain, pointing to AI-related investment as a potential upside driver for prices and the Middle East supply chain disruptions as an ongoing source of uncertainty for both growth and inflation.
On the liquidity management side, Williams highlighted standing repo operations as a key tool for capping pressure on short-term interest rates, adding that the Fed would adjust its reserve management purchases as conditions require.
The remarks come after the Fed held its target rate range unchanged at 3.5% to 3.75% at its most recent meeting.
