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Fed’s John Williams says inflation is easing as tariff effects move into the rearview mirror
The New York Fed president sees price pressures gradually fading, with inflation expected to drift toward 2% over the next two years.
John Williams, who leads the Federal Reserve Bank of New York and holds a permanent voting seat on the Federal Open Market Committee, said in a CNBC interview that recent data has been “encouraging” and that inflation is “moving slowly down as some of the effects of the tariffs move into the rearview mirror.”
With the FOMC’s next meeting set for September 15-16, the comments land at a moment when traders are trying to decode whether the Fed will push rates higher from the current 3.5%-3.75% target range or hold steady.
The tariff tax is fading
Williams’ core argument is straightforward. Inflation, currently running somewhere in the range of 2.75% to 3%, has been elevated largely because of tariffs and geopolitical disruption, particularly the ongoing conflict in the Middle East involving Iran. Those are supply-side shocks, not demand-driven overheating.
The key detail that matters most: higher energy prices stemming from the Middle East crisis have not meaningfully bled into service-sector prices. In economics jargon, there are no significant “second-round effects.” In plain terms, gas got more expensive, but your haircut and your accountant haven’t jacked up their prices in response.
He projected that inflation will likely trend back toward the Fed’s 2% target during 2027-2028, framing the tariff-related price pressures as largely transitory.
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What rising yields actually mean
Williams characterized the yield increase as reflecting economic strength rather than inflation anxiety. Williams also noted that inflation expectations remain “well-anchored,” which is the Fed’s way of saying that businesses, consumers, and bond traders still believe the central bank will get prices under control.
September meeting: hike or hold
The September 15-16 FOMC meeting is shaping up to be one of the more consequential policy decisions of the year. With rates already at 3.5%-3.75%, the committee faces a genuine fork in the road.
Williams was careful not to pre-commit, noting that any policy adjustments will depend on incoming economic data. If the next batch of inflation readings confirms the downward trend Williams described, the case for holding rates steady gets considerably stronger.
On the other hand, inflation is still meaningfully above the 2% target. A central bank that pauses while prices remain 75 to 100 basis points above its goal risks looking complacent.