Federal Reserve Vice Chairman Williams: Tariffs are beginning to affect commodity prices, and the restrictive policy stance is entirely appropriate

Federal Reserve's third-in-command Williams stated that the impact of tariffs on inflation is expected to increase in the coming months, making the Fed's current restrictive policy stance "entirely appropriate."

On July 16, during an event, New York Federal Reserve Bank President Williams pointed out that although the current comprehensive data shows only a relatively limited impact from tariffs, it is expected that tariffs will contribute approximately one percentage point to inflation from the second half of this year through 2026. He emphasized:

I expect these effects to intensify in the coming months. Maintaining this moderately restrictive monetary policy stance is entirely appropriate.

So far this year, the Fed has kept the benchmark interest rate unchanged, and the market generally expects FOMC officials to maintain the status quo at the rate meeting at the end of July, with about two rate cuts still anticipated within the year.

(Expectations for the Fed to cut rates by about 46 basis points this year, approximately two rate cuts)

Wall Street Journal previously mentioned that the June CPI data initially appeared mild, but core goods (such as appliances, clothing, entertainment products, etc.) saw price increases in June, marking the first rise since February. Currently, investment banks generally expect that the core PCE data, which the Fed values, will perform strongly. This to some extent validates Williams' view: the tariffs imposed by Trump on imported goods have begun to push up prices for certain products.

Initial Impact of Tariffs, Core Goods Prices Under Pressure

Williams' hawkish stance is rooted in his outlook on inflation.

He explicitly pointed out that the initial impact of tariff increases on core goods prices has already emerged. He specifically mentioned categories such as household appliances, musical instruments, luggage, and tableware. He added:

A weaker dollar may also bring some upward pressure on inflation in the future.

While emphasizing inflation risks, Williams also provided a relatively pessimistic forecast for the overall health of the U.S. economy, highlighting that the Fed is facing a difficult balance between curbing inflation and maintaining economic growth.

He expects economic growth to slow to about 1% this year, with the unemployment rate rising to around 4.5%.

This series of economic forecasts paints a complex picture of slowing growth but persistent inflationary pressures, supporting the Fed's decision-making logic to maintain a wait-and-see and restrictive stance before taking further action