MNI: Fed's Williams- Well Positioned For Rising Risks

U.S. monetary policy is "well positioned" to balance rising risks to the Federal Reserve's maximum employment and price stability goals from tariffs, supply chain disruptions and heightened uncertainty from the Iran war, New York Fed President John Williams said Monday.  

Elevated inflation, mixed signals from the labor market and the Middle East conflict "present an unusual set of circumstances, but the current stance of monetary policy is well positioned," he said in remarks prepared for a New York financial conference. The FOMC kept its benchmark interest rate on hold last week at 3.5-3.75%. 

"Right now, the future is difficult to see, and the risks to both sides of our mandate have increased," Williams said. 

"The extent and duration of the effects of supply disruptions and higher energy prices that are emanating from the Middle East conflict are key factors that will shape the global economic outlook. We simply can’t know how this will play out." (See: MNI INTERVIEW: Fed Expected To Cut Rates Late In 2026- Ireland)

SEVERE SCENARIOS

Williams warned that despite markets assuming a relatively benign resolution to the war, "several plausible scenarios entail more severe dislocations in both prices and quantities," such as supply chain issues disrupting high-tech equipment manufacturing in Asia. 

The rising cost of fuel also affects airfares, groceries, fertilizers, packaging and other consumer products, he said. 

"The conflict could result in a larger and broader-based supply shock that has more severe adverse consequences for inflation and economic activity," he said. 

And while current tariffs should pass through the economy in the next few months, Williams said he also expects a new round of tariffs in coming months to put additional upward pressure on import prices. Headline PCE inflation was 3.5% in March. 

"My base case is for inflation to be about 3% this year, before dropping to our 2% target in 2027 as the effects of tariffs and energy prices move into the rearview mirror." 

Hard data on the labor market meanwhile point to stability, but survey data suggest slackening and the mixed picture "bears continued close monitoring for signs that conditions are shifting."