Williams: Stability of Thy Times

Williams frames the current 3-1/2 to 3-3/4 percent stance as already "well positioned" to bring 4 percent inflation back to target, with no hint of a near-term move in either direction. Labor market is described as solid and stable across every measure he cites, so there is no employment-side case for easing. His inflation path is a slow glide: 3-1/4 percent by year-end, 2 percent only in 2028, and he expects unemployment to drift down, not up, meaning the bar for cuts looks high.

What’s new: Not a policy pivot. What is new is the specificity of his forecast track: inflation 3-1/4 percent at year-end, on target only in 2028, GDP 2 to 2-1/4 percent for three years, unemployment edging down to 4 percent by 2028. Also new is his explicit claim that AI-related demand for semis, transformers and power is now a distinct third driver of inflation feeding into consumer prices, and his view that further tariffs will largely replace expiring ones rather than add a new price impulse.

KEY FINDINGS

• Policy described as "well positioned" at 3-1/2 to 3-3/4 percent, with no signal of a directional bias in either direction. Reinforces an extended hold and takes near-term cut pricing off the table absent a data break.
• Unemployment forecast edges DOWN to 4 percent by 2028, with growth modestly above his 2 percent potential estimate. A central banker forecasting a tightening labor market with 4 percent inflation has no mechanical case to ease: hawkish by implication.
• Inflation only reaches target in 2028, and he calls restoring it "imperative". A three-year convergence horizon plus imperative language means tolerance for holding restrictive longer.
• AI investment is named as an active inflation driver via semiconductor, transformer and power prices, with the imbalance's "magnitude and duration" highly uncertain. An upside inflation source the Fed cannot offset quickly, and a risk skew that argues against cutting into the boom.
• Six separate disinflation arguments listed, including anchored five-year expectations and wage growth "consistent with low inflation", supporting his view inflation has peaked. Caps the hawkish read: he is not arguing for hikes, just patience.
• He expects new tariffs to mostly replace curtailed or expiring ones, so no significant additional price impulse. Removes one tail risk that could have forced a hawkish repricing later in the year.

FROM THE DOCUMENT

The current stance of monetary policy is well positioned to do that.

With growth running modestly above my estimate of its potential rate of 2 percent, I expect the unemployment rate to edge down very gradually to 4 percent in 2028.

For the reasons I outlined a moment ago, I expect overall inflation to decline to around 3-1/4 percent by year-end, then continue on a glide path toward our 2 percent goal in 2027 and land on target in 2028.