Federal Reserve "Number Three": U.S. inflation remains high in the short term, long-term expectations are stable, and the current interest rate policy is in an appropriate position.

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John Williams, President of the Federal Reserve Bank of New York, said on Thursday that given the economic outlook, the Fed's current monetary policy is in the right place. He expects inflation to remain high in the short term, but price pressures will ease later this year.

Williams said at an economic conference in Reykjavik, Iceland, that the Fed's current policy is "somewhat restrictive," and "before we need to make decisions about rate adjustments, we are in a favorable position to continue observing the progress of the conflict as well as other data."

As Vice Chair of the Federal Open Market Committee (FOMC), with voting power on interest rates, Williams stated that under different economic outlooks, the Fed could either raise or lower rates. If inflation remains high, it may be necessary to tighten rates (raise interest rates), but he added that this situation has not occurred yet.

Short-Term High Inflation, Long-Term Expectations Stable

Against the backdrop of President Trump greatly increasing import tariffs and energy shocks caused by war in the Middle East, inflation will remain high in the short term for some time.

"I believe that in the coming months, we will see inflation remain at very high levels, with (personal consumption expenditure) inflation close to about 4% and core inflation above 3%, as we are seeing today." But he added that as the effects of tariffs dissipate and the energy shock eases, inflation may slow down. He also noted that price pressures may peak in the coming months.

The financial markets generally believe the Fed will remain on hold for some time, but have also begun considering the possibility of raising rates above the current federal funds target range of 3.5%-3.75%. Inflation pressures have been above target levels for years, and there is growing concern that the latest round of shocks could begin to destabilize inflation expectations and bring greater price pressures to the economy.

Williams said short-term inflation expectations have risen, and given recent events, this is not surprising, but long-term expectations remain stable. He said it is crucial for the Fed to keep expectations stable.

This official also said the U.S. economy is currently "robust" and "the underlying labor market is performing quite well."

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