Speaking at an event hosted by the New York Fed on Thursday, Williams said market expectations for oil prices continue to point toward moderation over the next six to 12 months. According to Reuters, he said this remains a reasonable baseline despite the resurgence of geopolitical tensions that have raised concerns over global energy supplies.
No commitment on July policy move
Williams declined to indicate whether the Federal Reserve could raise interest rates at its July 28-29 meeting, stressing that policymakers have not yet begun their formal assessment ahead of the gathering.
Williams underscored that the Federal Open Market Committee evaluates incoming economic data before every meeting and does not make long-term commitments based on any single set of developments.
His remarks come a day after the release of minutes from the Fed’s June 16-17 meeting, when officials left the benchmark interest rate unchanged at 3.50%-3.75%. Reuters reported that policymakers’ updated projections at the meeting indicated expectations for higher interest rates later this year amid inflation remaining above the Fed’s target.
Middle East conflict clouds inflation outlook
Reuters reported that Williams had expressed optimism earlier this week that inflation would continue to ease, partly because of lower energy prices linked to what had appeared to be a de-escalation in the Middle East conflict.
However, renewed fighting has complicated that outlook by increasing the risk of disruptions to energy supplies and global trade flows. The renewed tensions have heightened concerns that sustained increases in oil prices could keep inflation elevated and potentially require tighter monetary policy if price pressures intensify.
Fed remains focused on incoming data
Williams reiterated that the Federal Reserve’s policy decisions will continue to be driven by economic data rather than predetermined outcomes.
According to Reuters, he said the June meeting minutes reflected the broad range of possible inflation scenarios facing policymakers. While some factors, including tariffs and energy prices, could evolve more favourably than expected, other scenarios could see inflation remain stubbornly high, warranting a tighter monetary policy response.
Williams also noted that understanding how the central bank reacts to changing economic conditions is important given the uncertainty surrounding inflation and growth.
AI investment may fuel near-term inflation
Williams said the surge in investment tied to building artificial intelligence infrastructure could contribute to higher inflation in the near term by boosting demand relative to supply.While such investments could eventually improve productivity and help reduce inflationary pressures over time, he suggested that sustained demand-driven inflation would require an appropriate monetary policy response rather than being overlooked by policymakers.
Calls for caution on Fed balance sheet changes
Williams also commented on ongoing discussions over possible changes to the Federal Reserve’s balance sheet strategy as policymakers examine ways to further reduce the central bank’s holdings.
Proposals under consideration include allowing financial institutions to hold smaller emergency cash reserves, although critics argue such measures could leave banks more vulnerable during periods of financial stress.
Williams said any overhaul should prioritise the resilience and stability of the financial system rather than focusing primarily on reducing the size of the Fed’s balance sheet, which currently stands at roughly $6.7 trillion, Reuters reported. He stressed that strengthening the financial system should remain the central objective of any policy changes.
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