ICYMI – Fed’s Williams turns more upbeat on inflation as oil prices retreat
Crude’s slide from the peak reached during the Iran conflict is doing quiet work on the inflation narrative, giving Williams room to sound more relaxed without committing to any change in rate policy. Traders parsing his comments will note the gap between his softer tone on prices and the Fed’s own dot plot, which still shows a majority of officials expecting to tighten before year end. The Strait of Hormuz reopening removes a key tail risk that had been priced into energy futures, and further easing there could accelerate the disinflation Williams is pointing to. With Warsh keeping his cards close, markets are left reading individual officials like Williams for clues, and his comments suggest the committee sees more flexibility than the June inflation print alone would imply.
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NY Fed’s Williams says falling oil prices should pull inflation lower in coming months, calls current policy well positioned despite hot May data.
Earlier:
Summary:
- Williams said he feels more positive on the near term inflation outlook because of expected energy price declines
- He described current monetary policy as well positioned to meet the Fed’s employment and price stability goals
- The Fed’s preferred inflation gauge rose to 4.1% year over year in May, with core prices up 3.4%
- Strait of Hormuz shipping has recovered after an effective closure tied to the outbreak of the US-Iran conflict, and oil prices have fallen since an interim peace deal
- The Fed held its overnight rate range at 3.5% to 3.75% at last month’s meeting, with nine officials penciling in at least a quarter point hike this year
- Williams said there was strong agreement among FOMC members to drop forward guidance language from the June statement, citing elevated uncertainty
- He said he does not plan to change his communications approach under new Fed Chair Kevin Warsh, who has avoided signaling a preferred rate path
Federal Reserve Bank of New York President John Williams said Tuesday he has grown somewhat more optimistic about the near term path of inflation, pointing to falling energy prices as the main driver behind the shift. Speaking in a Fox television interview, Williams said he expects both current and future oil prices to decline further, which should help pull headline inflation down over the coming months.
The comments follow a period of turmoil in energy markets tied to the outbreak of conflict between the United States and Iran earlier this year, which briefly disrupted shipping through the Strait of Hormuz. Transit through the strait has since recovered, and crude prices have fallen considerably following an interim peace deal between the two countries, according to Williams’ remarks.
Despite the more upbeat tone on prices, Williams stopped short of signaling any change in the Fed’s policy stance, describing current settings as well positioned to achieve the central bank’s dual mandate of maximum employment and price stability. That caution comes even as the Fed’s preferred inflation gauge climbed to 4.1% year over year in May, with core prices, which exclude food and energy, up 3.4%.
The Fed left its benchmark rate unchanged at last month’s meeting, holding the target range at 3.5% to 3.75%, though nine officials indicated in their latest projections that they expect at least one quarter point hike before the end of the year. Williams said there was strong agreement across the committee to strip forward guidance language from the post meeting statement, citing the scale of uncertainty around both the inflation outlook and the broader economy.
New Fed Chair Kevin Warsh has taken a similarly guarded approach since replacing his predecessor, declining to indicate whether the next move in rates will be up or down and preferring to let markets set their own expectations based on incoming data. Williams said he does not intend to alter his own communication style as a result, and will continue offering his views on economic data and how current policy is positioned relative to the Fed’s goals, without providing explicit forward guidance. The Fed next meets in Washington later this month.
This article was written by Eamonn Sheridan at investinglive.com.