Threatened action is always in the future, too little and too late.
The Fed Will Act
Reuters reports Fed’s Williams expects inflation to ease, says Fed will act if it doesn’t.
Federal Reserve Bank of New York President John Williams said he remained optimistic that inflation pressures are on track to ease gradually, but if they don’t the U.S. central bank will not hesitate to respond with rate hikes to ensure price pressures return to target.
If energy prices and trade tariffs have peaked and the economy remains on a solid footing, “I think that some of the big drivers that pushed up inflation” over the last year and half or so “will not be at play as much, and then some of the disinflationary forces that we’ve been seeing” should reassert themselves, Williams said in an interview with Reuters on Friday.
Williams said “I am quite honestly focused quite a bit on, what are we seeing in the core inflation data over the next several months, and is that consistent with a kind of a run rate of inflation moving towards 2% and really on a disinflationary path consistent with us achieving our 2% inflation goal on a sustained basis by 2028.” He added, “my forecast personally is for inflation to come down in the second half of this year and come down further next year.”
Williams reiterated the current stance of interest rate policy is “well positioned” to bring inflation back to target.
But Williams noted that “if the economy is not on a trajectory that will bring inflation back down to 2% … it would absolutely be appropriate to act to get us on a trajectory that does bring inflation back to 2%.”
Market Forces
“I don’t anticipate, at least based on what’s happening so far in my base case, that we’re going to see … continued inflationary push in the second half of the year or the next year from the from the conflict in the Middle East, but that’s something that obviously could change depending on circumstances,” Williams said.
Asked if the Fed would feel bound to set monetary policy based on market levels, he responded “absolutely not,” although the central bank closely watches financial markets.
“We always have to come do our own analysis, do our hard work, assess all of the … factors influencing the economy, the outlook,” Williams said.
Absolutely Not
It’s important to understand what “absolutely not” implies.
Here it is in two words: Quantitative Easing (QE).
If market forces are pushing rates higher, the Fed must do whatever it takes to defend its interest rate policy.
The primary tool is QE (asset purchases, buying treasuries to force the market to the Fed’s will).
Bear in mind that Kevin Warsh wants to (says he wants to) shrink the Fed’s balance sheet.
Williams’ Forecast
Total Credit Market Debt Owed vs GDP
On July 27, 2026 I asked How Much Credit Growth Does It Take to Expand Real GDP?
TCMDO vs GDP 2026 Q1
- TCMDO: 115.556 Trillion
- Nominal GDP: 31.866 Trillion
- Real GDP: 24.180 Trillion
On August 15, 1971 president Nixon temporarily suspended redeemability of gold for dollars.
It turned out to be permanent. Since then, there has been no constraints on the expansion of money, national debt, or trade deficits.
Credit expansion is running 6 percent year-over-year. Much of that is spilling over into stock market bubbles the Fed does not even see.
The Fed does not count home prices, property taxes, or even homeowners’ insurance in its incredibly poor definition of inflation.
The Fed Is Watching!
Fed Chairman Tries to Explain Why an Interest Rate Pause Isn’t a Pause
Please note Fed Chairman Tries to Explain Why an Interest Rate Pause Isn’t a Pause
Reporter Q&A
Message from the MarketsQ: Steve Liesman, CNBC: What message are you getting from the market as to where policy out to be right now?
A: The message from markets is the message from markets. What we are tying to de is get an unfiltered message from markets.Q:Edward Lawrence, Fox News: What specifically in your mind would be the argument for a pause today?
A: I wouldn’t characterize what we did today as anything like a pause. I would characterize what we did as a rigorous review of the economic situation.
Fed Will React When?
But the Fed will react. Yeah right. And it will ignore market signals including the bond market all the way.
As I type the 30-year long bond yield is 5.20 percent down about 7-8 basis points from the intraday high.
Oil is down from $88.07 on July 22 to $75.61 today on news of another deal.
The long bond yield is up from 5.147 percent to 5.200 percent in the same timeframe.
The bond market believes in strong disinflation as much as I do. That’s not at all.
And Williams says the Fed will “absolutely not” be bound by market forces.
Hello Mr. Williams, good luck with that.
