Fed's Williams Warns of Rate Hikes if Inflation Fails to Ease

John Williams, President of the Federal Reserve Bank of New York, believes inflation is on track to ease gradually. However, if this doesn't happen, he warns that the Fed will not hesitate to raise interest rates to bring prices back in line with their target.

In an interview with Reuters, Williams said that energy prices and trade tariffs have peaked, and as a result, 'some of the big drivers that pushed up inflation' over the last year and a half 'will not be at play as much.' He expects disinflationary forces to reassert themselves, which will help bring inflation down.

Williams is focused on core inflation data, saying he wants to see it consistent with a 2% inflation rate. His forecast is for inflation to come down in the second half of this year and further next year.

Despite the current high inflation rate, which stands at 3.7%, Williams believes the Fed's current interest rate policy is 'well positioned' to bring inflation back to target. However, he noted that if the economy doesn't follow a trajectory that will bring inflation down, it would be appropriate for the Fed to act.

Three Fed officials dissented at the last meeting, saying they believe the Fed needs to boost interest rates to get inflation under control.