Transcript of Reuters interview with NY Fed President Williams

Williams said the New York Fed watches and analyzes financial markets closely because financial conditions affect the economy, but he said market pricing is not something the Fed needs to ratify. He said rising long-term yields and changes in equity markets matter because they affect borrowing costs, returns on assets, and broader financial conditions, but they do not tell policymakers what to do. He said markets are reacting to data, geopolitical developments, oil prices, productivity, and inflation information, and that this is a healthy process. He also said the current level of uncertainty about FOMC outcomes is normal in a world where policy is driven by the commitment to achieve price stability and maximum employment. On confidence in the Fed's 2% inflation goal, Williams said he has not sensed that the FOMC's credibility has faltered. He said market measures and surveys may have moved on near- and medium-term inflation expectations when inflation rose, but longer-run expectations did not show a major shift. Asked about AI and potential bubble risks, Williams said he does not see the sector as a bubble. He described AI as a general-purpose technology that could be transformative for the U.S. economy and said investors are trying to assess in real time how large the benefits will be and which companies will succeed. He said there are risks, but he is not especially worried about financial stability from the leverage involved so far, noting that much of it is debt financing alongside equity financing and that many of these businesses have very high earnings. He said volatility in the equity markets is likely as the market reassesses the winners and losers in a fast-changing environment. Reuters spoke with Williams on July 31, two days after the latest policy meeting. A full transcript of the interview follows, lightly edited for context and clarity. Williams said he still finds it useful to separate three categories of factors keeping inflation elevated, starting with tariffs. In his view, the vast majority or a large part of the effects of the tariffs already in place have passed through into prices in the U.S. economy, and he does not expect large tariff effects on inflation rates in the coming months if the tariff picture does not significantly change. He said the conflict in the Middle East is a factor that changes day to day and week to week, and that it has led to higher oil prices and the closing of the Strait, affecting energy and commodity prices. He said futures markets and some experts still expect a resolution that would lead to the reopening of trade in energy and other commodities, and that his base forecast assumes energy prices moderate over time. He added that he is not putting a great deal of certainty or confidence in any particular forecast for energy prices. Williams also pointed to strong demand related to AI as a third category he is watching carefully. He said it is not a big driver of inflation right now, but it is clearly pushing up certain categories of goods. Asked why the Fed did not raise rates, Williams said he strongly supported the committee's decision and that the labor market has been stable, while growth has been solid but not overheating. He said the economy is growing more or less at trend, with the unemployment rate near constant for about a year, and that he is not seeing signs that the overall economy is adding to inflation. He said his base forecast is for inflation to come down in the second half of this year and further next year, as the effects of tariffs and energy prices diminish and disinflationary trends such as lower housing costs continue. He said monetary policy is currently well positioned to support that path. On the question of whether he would support tighter policy if inflation failed to moderate, Williams said the Fed is committed to bringing inflation back to 2%. He said that if the economy were not on a trajectory that would achieve that goal, it would absolutely be appropriate to act to put policy on a path that does. Williams said the current uncertainty makes explicit forward guidance less useful. He said the committee supported pulling back from forward guidance because it no longer had the confidence or conviction to signal a clear policy direction. He said the Fed should instead meet, assess the information, and make decisions without trying to tell markets in advance where policy is headed.

Transcript of Reuters interview with NY Fed President Williams

Markets, yields, and AI investment

Inflation outlook and energy prices

Fed policy, inflation target, and forward guidance

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