Fed Keeps Rate Hike Option Open Amid Easing Inflation Expectations

New York Federal Reserve President John Williams expects US inflation to gradually ease over the coming quarters. However, he signalled that the central bank is prepared to raise interest rates if price pressures fail to return to its 2 per cent target.

Williams acknowledged that uncertainty over tariffs, energy prices and geopolitical developments continues to cloud the inflation outlook. He maintained that current monetary policy is appropriately restrictive, but noted that policymakers would not hesitate to respond if inflation deviates from the Fed's objective.

The Federal Open Market Committee left its benchmark policy rate unchanged at 3.50 per cent to 3.75 per cent last week. Williams said his baseline expectation remains for inflation to move lower as temporary price pressures from tariffs fade and energy prices stabilise, allowing broader disinflationary trends to resume.