New York Fed President Williams says inflation likely peaked, rates positioned to stay steady

New York Federal Reserve President John Williams told a gathering of business leaders that multiple indicators suggest inflation has peaked, giving the central bank room to maintain current interest rates despite market expectations of a hike. He outlined five reasons for his view, including the easing of oil price pressures after the February conflict involving Iran, the winding down of tariff effects as expiring duties are replaced, and a slowdown in price pressures from accelerated technology spending.

Williams said the oil price surge "likely peaked and will come down closer to levels seen before" the fighting, and that artificial-intelligence-driven investment imbalances should recede as supply expands. He added that the labor market is not fueling inflation and that inflation expectations remain "well-anchored," providing policy flexibility.

"There are encouraging reasons to expect that inflation has peaked and should edge down in coming quarters," Williams said.

He projected overall inflation to fall to about 3.25% by year-end and continue on a glide path toward the Fed’s 2% goal by 2027, reaching the target in 2028. "Growth in the economy is solid and on trend, and the labor market is likewise solid and stable," he noted, adding that the current stance of monetary policy is "well positioned" to achieve the longer-run goal.

The remarks followed a Bureau of Labor Statistics report showing a 0.4% monthly decline in consumer prices in June, the sharpest drop since April 2020, which lowered the annual inflation rate to 3.5%. Markets, however, still anticipate a rate increase as early as September, and a recent Federal Open Market Committee poll indicated a modest quarter-point hike by year-end. Fed Chair Kevin Warsh cautioned that the price decline does not signal a "mission accomplished" moment.