Federal Reserve "number three" Williams: There is absolutely a risk of rising inflation in the United States

Two officials from the Federal Reserve spoke on Monday, expressing concerns about the inflation outlook in the United States. Among them, John Williams, the president of the New York Federal Reserve, known as the "third in command" of the Federal Reserve, believes there is a risk of rising inflation this year. Meanwhile, Tom Barkin, the president of the Richmond Federal Reserve, stated that the Federal Reserve needs to establish more confidence in controlling inflation before further rate cuts can be made.

Third in Command of the Federal Reserve: Policy Uncertainty is Affecting the Economy

As president of the New York Federal Reserve, Williams holds a permanent voting seat on the FOMC and is considered the "third in command" of the Federal Reserve. In a media interview, Williams stated that although his baseline view is that inflation will remain relatively stable, there is a risk of rising inflation this year.

He said, according to the Federal Reserve's latest economic forecasts,

"You can see that the members of the committee generally believe there are upside risks to the inflation outlook, which is completely consistent with my personal view."

"Clearly, there are upside risks to inflation, largely depending on tariffs and other potential policies that may be implemented."

Williams noted that it is still unclear what impact the tariffs imposed by Trump will have on the economy, emphasizing that the Federal Reserve will closely monitor upcoming data, especially prices and economic activity related to affected industries. He added that indirect effects may take years to manifest. He declined to comment on whether there would be rate cuts in the future and when they might occur.

He stated that regardless of what policies the Trump administration implements, the uncertainty itself may be affecting the behavior of some consumers and businesses. He noted that the economy remains in good shape and emphasized that the U.S. is not currently experiencing so-called "stagflation."

"I believe monetary policy is currently moderately restrictive," Williams said, adding that the Federal Reserve can maintain this policy stance for some time.

He reiterated that he expects economic growth to slow in 2025.

According to updated forecasts released earlier this month, Federal Reserve officials have lowered their expectations for economic growth this year while raising their inflation forecasts. They also increased their estimates for the unemployment rate and noted that uncertainty in all forecasts is increasing.

Like Federal Reserve Chairman Jerome Powell, Williams stated that long-term inflation expectations remain firmly anchored. The University of Michigan's measure of consumer inflation expectations for the next 5 to 10 years has surged to its highest level since 1993, but other measures have not shown such dramatic increases.

President of the Richmond Federal Reserve: Rate Cuts Will Continue Only with Sufficient Confidence in Lower Inflation

On Monday, Tom Barkin, the president of the Richmond Federal Reserve, stated that the Federal Reserve needs to have sufficient confidence that inflation will decline before considering another rate cut. In a media interview, he said:

"You can gain this confidence because inflation is actually stabilizing, or you might think that regardless of any economic downturn, inflation will stabilize because the economic conditions are very poor.

The FOMC needs to have confidence that inflation will return to the target of 2% before deciding to cut rates."

Barkin also mentioned that Federal Reserve officials will need some time to better understand how Trump's tariff policies will affect their interest rate decisions Since taking office in January, Trump has increased the use of tariffs and has imposed new tariffs on several U.S. trading partners. He has promised to announce a significant initiative regarding so-called "reciprocal tariffs" on April 2.

Against the backdrop of an escalating trade war, the Federal Reserve has lowered its economic growth expectations for 2025 and raised its inflation forecasts. So far this year, the Federal Reserve has kept the benchmark interest rate stable after making three rate cuts in the last few months of 2024. Due to the ongoing uncertainty surrounding Trump's policy agenda and the inflation level remaining above the central bank's 2% target, policymakers have currently reached a consensus on a cautious approach to adjusting interest rates.

Barkin emphasized that economic uncertainty is weighing on business and consumer confidence. He also stated that he would not assume that the inflationary pressures brought about by tariffs are temporary. Once the tariff rates become clear, American consumers will respond.