Federal Reserve "Third-in-Command": U.S. inflation remains high in the short term, long-term expectations are stable, and current interest rate policy is at an appropriate level

John Williams, President of the Federal Reserve Bank of New York, stated on Thursday that given the economic outlook, the Federal Reserve's current monetary policy is in an appropriate position. He expects inflation to remain high in the short term, but price pressures are likely to ease later this year.

Speaking at the Reykjavik Economic Conference in Iceland, Williams said that for now, the Federal Reserve's policy is "slightly restrictive," and "before we need to make decisions about rate adjustments, we are in a favorable position to continue observing the progress of conflicts and other data."

As Vice Chair of the Federal Open Market Committee (FOMC), who holds voting rights on interest rates, Williams noted that under different economic scenarios, the Federal Reserve could potentially raise or cut rates. If inflation remains persistently high, it may be necessary to tighten rates (raise interest rates), but he added that this situation has not occurred as of now.

Short-term Inflation Remains High, Long-term Expectations Stable

Against the backdrop of President Trump sharply increasing import tariffs and energy shocks caused by the war in the Middle East, inflation is expected to remain elevated for some time in the short term.

"I think over the next several months we will see inflation persist at extremely high levels, with (personal consumption expenditures) inflation close to about 4% and core inflation above 3%, as we see today." But he added that as the effect of tariffs fades and energy shocks subside, inflation may slow down. He also said that price pressures may peak in the coming months.

Financial markets generally believe the Federal Reserve will hold steady for a period of time, but have also begun considering the possibility of raising rates from the current federal funds target range of 3.5%-3.75%. Inflationary pressures have been above target for several years, and there is growing concern that the latest round of shocks could begin to destabilize inflation expectations and exert greater price pressure on the economy.

Williams said short-term inflation expectations have risen, which is not surprising given recent events, but long-term expectations remain stable. He emphasized the importance of the Federal Reserve maintaining stable expectations.

This official also stated that the U.S. economy is currently "robust," and "the underlying labor market is performing fairly well."