Fed Chief Warns of Rate Hikes If Inflation Doesn't Ease

New York Fed Chair John Williams believes inflation is on track to ease gradually. However, he stressed that if this doesn't happen, the central bank will take action by raising interest rates.

The inflation drivers, such as energy prices and tariffs, may have reached a peak, allowing disinflationary forces to continue acting. This could lead to inflation coming down in the second half of this year and further next year.

Williams' personal forecast is for inflation to move towards 2% and be on a sustained path by 2028. However, if this scenario doesn't materialize, he would consider raising interest rates to bring inflation back to 2%.

The Federal Reserve recently left interest rates unchanged, but three members of the Federal Open Market Committee dissented, calling for a hike. Cleveland Fed's Beth Hammack and Minneapolis' Neel Kashkari argued that action is needed now to speed up the return of PCE inflation to 2%. Dallas Fed Lorie Logan also voted for a hike.