Fed's 'Number Three': Inflation High in the Short Term, Expected Stable in the Long Term, No Need to Adjust Interest Rate Temporarily

John Williams, President of the Federal Reserve Bank of New York, said on Thursday at the Reykjavik Economic Conference in Iceland that given the current economic outlook, the Federal Reserve's monetary policy is in the right place, and there is ample room to continue observing the situation before deciding on interest rate adjustments.

As vice chairman of the FOMC, Williams said the current policy is "slightly restrictive," and the Federal Reserve has both the possibility of raising and lowering interest rates depending on changes in the economic outlook—if inflation remains high, interest rates may need to be raised, but he added that this situation has not yet occurred.

On the outlook for inflation, Williams expects the PCE inflation rate to remain near 4% in the next few months, with core inflation above 3%, consistent with current data. However, he also said that as the impact of tariffs fades and energy shocks ease, price pressures may peak in the next few months, and inflation will gradually fall later this year.

In terms of expectation management, Williams noted that short-term inflation expectations have risen, which is not surprising considering recent events, but long-term inflation expectations remain stable, and maintaining stability in expectations is crucial for the Federal Reserve. He also said that the U.S. economy is currently "robust" and the underlying labor market performance is "quite good".