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New York Federal Reserve President John Williams emphasized the need for central banks to act decisively when inflation strays from target levels, warning that inaction could risk inflation becoming persistent or even permanent. Speaking at a Bank of Japan conference alongside Deputy Governor Ryozo Himino, Williams highlighted the high uncertainty caused by U.S. tariffs and erratic trade policy under President Donald Trump.
Williams noted that when economic shocks—such as those from the COVID-19 pandemic—disrupt supply chains, they can unsettle public expectations of inflation. He stressed the importance of keeping both long-term and short-term inflation expectations “well anchored” to prevent destabilizing price trends. According to Williams, the cost of policy missteps in such uncertain times often outweighs the benefit of finding a perfect solution.
Despite global financial market volatility in April, triggered by Trump's reciprocal tariffs, Williams observed that markets remained functional, with continued activity between buyers and sellers. However, the Federal Reserve has kept interest rates unchanged at 4.25%-4.50% since December, choosing to wait for clearer signals on the inflationary effects of these trade disruptions.
Williams reiterated that central banks must remain vigilant in monitoring inflation expectations. While supply-side shocks might not have lasting effects if expectations are stable, any shift could derail price stability efforts. He also assured that the U.S. financial system has a “clearly abundant” level of reserves, providing a vital cushion during economic shocks.
As central banks worldwide grapple with unpredictable trade policies and inflation risks, Williams’s remarks underscore the importance of preemptive and decisive monetary policy to maintain economic stability.
