Fed's Williams Signals Patience on Rates as Inflation Remains Too High and AI Adds to Price Pressures

New York Federal Reserve President John Williams, speaking at an ECB conference on Friday, described the US economy as remarkably resilient with strengthened growth and a stable labor market, while warning that inflation remains too high and has persisted for too long. Williams cited unusual simultaneous shocks to both supply and demand as the defining challenge for policymakers, and flagged that AI development is adding to inflation in the short term, with narrow but visible price effects already seen in areas such as chips.

On tariffs, Williams said their inflationary effects have largely worked through the system and are mostly now behind the US economy. He noted that energy prices are passing through to inflation as expected, but that inflation expectations remain well anchored and wage growth is consistent with the 2% target. Williams was explicit that it is essential to bring inflation back to 2% in a timely manner, and that monetary policy takes one to two years to take full effect, requiring a forward-looking approach.

Williams stopped short of signaling any imminent rate move, saying the current moment is an appropriate time to accumulate more information before acting. His remarks came as the US dollar index extended its recovery toward 102.00 and Wall Street's main indexes were nursing heavy losses from Thursday. Markets are also awaiting the US nonfarm payrolls report, University of Michigan consumer confidence data, and eurozone retail sales figures due Friday.

Separately, ECB Chief Economist Philip Lane, also speaking at the conference, said the energy price shock will spill over into other areas of the economy and that the ECB's job is to contain that effect. Lane noted fiscal policy had been more expansive than expected but projected tightening ahead, and said the ECB would gather further data before making a decision in December.