New York Federal Reserve President John Williams said in an interview with Yahoo Finance on Monday that as policymakers observe the impact of Trump's new tariffs on the economy, the Federal Reserve is expected to keep interest rates steady for "some time", as tariffs may have longer-term effects on inflation that could take years to clarify.
Williams noted:
It is too early to draw definitive conclusions. The Federal Reserve will closely observe the indirect effects of new tariffs, which may take several years to truly manifest.
Yes, we will see tariffs affecting prices, and then we must continue to observe how these effects extend to other commodity prices. The Federal Reserve needs to truly maintain an open mind and observe how long these impacts will persist in inflation and the overall economy.
Trump's new tariff measures will be revealed on the 2nd, and the key question for the Federal Reserve is whether price increases caused by tariffs will quickly subside or persist long-term. Some economists and market observers are concerned that inflation may continue to rise while economic growth slows, potentially repeating stagflation similar to the 1970s.
No Signs of Stagflation, Economy Still Expected to Grow
Williams stated that he currently sees no signs of stagflation, with unemployment at 4.1% and overall inflation around 2.5%. The Federal Reserve will not allow high inflation to take root as it did in the 70s and 80s, though he candidly acknowledged that the risk of inflation exceeding predictions does exist.
In Williams' view, the current economic situation is "very good", but he also frankly admitted to "significant uncertainty" about the economic trajectory in the coming year. He noted that current uncertainty has shifted from inflation to concerns about economic growth slowdown, while simultaneously accompanied by the risk of potential inflation increase:
My personal view is that the economy will continue to grow, but at a slower pace than last year.
Williams emphasized that both economic trends and policy actions are filled with uncertainty, and it is not only the US economy but also how the global economy responds to these developments that is equally important. Therefore, he expects the Federal Reserve's interest rates to remain unchanged for "some time".
