Federal Reserve's third-in-command, Williams, stated that inflation is slowly declining and interest rates are at a "good level."

Federal Reserve's third-in-command, Williams, stated that inflation is slowly declining and interest rates are at a "good level."

Discussions within the Federal Reserve regarding the path of interest rates are becoming more cautious. New York Fed President John Williams said on Wednesday that inflation is slowly declining and current interest rates are in a "good place," emphasizing the need to gather more data before making further decisions.

In an interview with CNBC, Williams stated that recent data is encouraging, and the inflation trend is slowly declining as the impact of tariffs gradually fades. He explicitly supported the Federal Open Market Committee's (FOMC) decision in July to keep interest rates unchanged, believing that the current interest rate level helps balance the dual mandates of employment and price stability.

Williams also pointed out that tariffs and rising energy prices due to the Middle East situation remain the primary drivers of inflation, with inflation also remaining significant in some service sectors. His neutral and cautious stance has left uncertainty for the September FOMC meeting, which is expected to be increasingly divided internally.

Williams stated that the latest data shows inflation continuing to decline, the impact of some tariffs has "faded into the rearview mirror," and rising energy prices have not yet spread widely to other service sectors, which provides some support for the overall inflation trend.

However, he also emphasized that the decline in inflation remains slow, with tariffs and energy price pressures from Middle East geopolitical conflicts remaining the most significant drivers of inflation, and service sector inflation showing no clear signs of easing. Williams reiterated the need to reduce the inflation rate to the policy target of 2% for the foreseeable future.

Support holding off and emphasizing data-driven approach

Regarding his stance on interest rates, Williams explicitly supported the FOMC's decision to keep interest rates unchanged in July. He stated that the strong economic outlook is the main reason for the recent rise in bond yields, and that the current interest rate level effectively balances the Fed's dual mandate.

He also stated that he hopes to collect and analyze more data before making the next interest rate decision. "We are gathering a lot of data, which will need to be reassessed at that time," he said.

It is worth noting that, according to Bloomberg, three voting members dissented at the July FOMC meeting, supporting a 25 basis point rate hike, indicating that internal divisions have widened.

With the September meeting approaching, the market is focused on the direction of the divergence.

Federal Reserve officials will hold their sixth monetary policy meeting of the year in Washington, D.C., on September 15-16. The FOMC has kept interest rates unchanged for five consecutive times this year.

The three dissenting votes on interest rate hikes at the July meeting have drawn significant market attention to the upcoming September meeting. Williams' latest remarks lean towards a neutral and cautious stance, emphasizing data reliance and patience, leaving considerable uncertainty about the meeting's outcome. Furthermore, Williams stated that Treasury bond repurchase operations will not interfere with his policy work.

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