Federal Reserve's Williams: Tariffs Will Have Greater Impact on Inflation, Restrictive Policy "Completely Appropriate"

New York Fed President Williams said he expects tariffs to have a greater impact on inflation in the coming months, so the Fed's current tightening policy is "completely appropriate." Williams said in a speech prepared for an event organized by the New York Business Economics Association on Wednesday: "Although the impact of tariffs is relatively limited from the hard macroeconomic data at the moment, I expect this impact to strengthen in the coming months. Maintaining this moderate tightening monetary policy stance is completely appropriate." The Fed has kept the benchmark interest rate unchanged this year, and it is widely expected that it will remain unchanged at the end of July. According to futures market data, investors expect the next rate cut to take place in September. Williams said he believes tariffs will raise inflation by about one percentage point in the second half of this year and until 2026. He pointed out that a weaker dollar "could further exacerbate inflation pressures in the future." Inflation data released earlier this week showed that tariffs imposed by Trump on imported goods have already started to push up prices of some goods. However, overall consumer prices have fallen below expectations for the fifth consecutive month, partly due to the moderate increase in service costs. "We have seen the initial impact of the tariff hikes on core commodity prices," Williams said, listing examples such as household appliances, musical instruments, luggage, and tableware. Williams said he expects the economic growth rate this year to fall to about 1%, and the unemployment rate to rise to about 4.5%. When asked by reporters after his speech about reports earlier in the day that President Trump will seek to replace Fed Chairman Powell, Williams declined to directly respond. But Williams emphasized the importance of an independent central bank for the healthy development of the national economy. He said, "This will bring better results for the country and the people, such as in terms of price stability and economic stability." When asked about the status of the dollar (which has depreciated by over 8% against a basket of developed market currencies so far this year), Williams said he is not concerned about the attractiveness of the dollar. He said, "The dollar's status as a reserve currency remains strong. There are many fundamental factors supporting the role of the dollar in the US, global trade, and global financial markets, and I believe these factors have not changed." He said that global investors still prefer assets priced in dollars, but many investors are now more inclined to take measures to reduce this investment risk, even more so than in the past.