Federal Reserve Bank of New York President John Williams told a television audience on Tuesday that recent movements in energy markets have made him somewhat more confident about the short-term trajectory for inflation, even as he reiterated that price pressures remain unacceptably high.
"Inflation is still too high," Williams said on Fox Business’ Mornings with Maria program, but he added that he feels "a little bit more positive about the near-term inflation outlook because of the energy price declines that we’re going to see."
Williams pointed to both current oil prices and market expectations for future oil prices when describing the shift in his outlook. "We definitely have seen a big decline in oil prices, not only, you know, the current oil prices, but future expected oil prices," he said, and added that he expects energy prices to "come down quite a bit and that will bring headline inflation down."
Despite that more sanguine near-term read, Williams was careful to stop short of saying the change in energy prices has altered the monetary policy stance he has maintained. He said monetary policy is "well positioned...to achieve our maximum employment and price stability goals," and declined to provide guidance on whether the central bank’s next move on interest rates will be up or down.
The Fed concluded a policy meeting last month that left the target range for the overnight federal funds rate unchanged at 3.5% to 3.75%. Williams did not offer an indication that the central bank is shifting away from that stance, emphasizing instead that future decisions will be driven by the path of the data.
Williams also commented on the approach of the new Fed leadership. He said the incoming Fed Chairman, Kevin Warsh, has been unwilling to give forward guidance about the direction of policy and has not explained how he expects policy to respond to incoming information, leaving more of the adjustment path to be discovered by markets.
In assessing the risks facing the outlook, Williams acknowledged that several Fed officials have contemplated the possibility of raising rates further because inflation remains above the 2% target. However, he noted that some of the pressure to lift rates has eased following an uneasy ceasefire after a heightened phase of the U.S.-Israeli war on Iran. That period had disrupted global energy markets and supply chains, but Williams said some of those pressures are moderating as the United States and Iran pursue negotiations toward a settlement.
When asked how the Fed will approach its next decisions, Williams said "it really depends on what happens with the data" and the attendant risks to the economic outlook. "Right now, I think policy is in a good place. We’ve just got to see how the economy evolves over coming months," he added.
On the economic backdrop, Williams described growth as solid and said risks around the job market have stabilized. He also indicated he does not plan to change his communications approach under the new Fed chairman, explaining that he will continue to share his views on economic data, the outlook, and how he sees monetary policy positioned relative to the Fed’s goals rather than offering forward guidance on the precise path of interest rates.
Implications for markets and sectors
- Energy - Williams’ comments link falling oil prices directly to an easing of headline inflation pressures.
- Fixed income - the Fed’s reluctance to provide explicit forward guidance leaves rate expectations sensitive to incoming data.
- Labor-sensitive sectors - with Williams describing the job market risks as stabilized, employment-sensitive industries may see less short-term volatility in demand expectations.