John Williams, President of the Federal Reserve Bank of New York, said on Thursday that despite renewed tensions in the Middle East, energy prices are not expected to show a sustained upward trend over the remainder of this year. He also emphasized that U.S. inflation remains “well above target,” and that the Federal Reserve will continue to base its subsequent monetary policy on economic data, while remaining firmly committed to bringing inflation back to the long-term goal of 2 percent.
Speaking at a New York Fed conference, Williams noted that market expectations for a gradual decline in international oil prices over the next six to twelve months remain reasonable. From a fundamental analysis perspective, energy prices may have approached a near-term peak and are likely to trend downward going forward. One of the Fed’s current key concerns is whether rising energy prices will further boost overall inflation. Williams revealed that the central bank is continuously assessing different inflation scenarios and will push decisively to return inflation to target levels. As President of the New York Fed, Williams serves as Vice Chair of the Federal Open Market Committee (FOMC) with a permanent voting seat, and is regarded as the “third-ranking official” of the Federal Reserve.
Discussing the impact of artificial intelligence (AI), Williams said that while related investment is currently putting some upward pressure on inflation, in the longer term, AI is expected to become a positive force for supply-side improvements. He projected that as AI technology is more widely applied, productivity will increase, which should help alleviate future inflationary pressures. On inflation measurement, Williams stated that the Fed focuses more on underlying inflation factors rather than any single indicator, and noted that as government statistical methods are adjusted, the divergence between the Personal Consumption Expenditures Price Index (PCE) and the Consumer Price Index (CPI) is expected to narrow further.
With respect to the monetary policy outlook, Williams reiterated that the Fed will continue to follow the “data-dependent” principle, flexibly adjusting the policy path in light of the latest economic data. He assessed that the U.S. labor market remains very stable at present, but that there is still considerable uncertainty around the long-term neutral interest rate level. Additionally, Williams commented that the Fed’s latest released meeting minutes well reflect the overall policy reaction framework of the decision-making body, demonstrating the committee’s comprehensive consideration of future paths under different economic scenarios.
Despite clear disagreements within the Fed over the future direction of interest rates, prediction market traders as a whole continue to lean toward the view that further rate hikes are possible this year. The latest data from the prediction market platform Kalshi show that traders assign a probability of approximately 54 percent to the Fed raising rates before the end of this year, slightly down from 56 percent the previous day; the probability of a rate hike before July 2027 is about 62 percent, while the probability before 2028 is close to 80 percent. Kalshi has launched multiple prediction contracts on the timing of rate hikes, corresponding to different time points, with contracts settling once conditions are met.
At the same time, another Kalshi forecast regarding the number of rate cuts this year indicates that traders assign a probability of about 76 percent to no rate cuts occurring within the year. Notably, this probability rose rapidly from 68 percent to 77 percent on June 16, the first day of the first policy meeting chaired by Warsh, and has since shown limited change during the meeting period and after the minutes were released, suggesting that investors generally believe the Fed is likely to maintain a relatively hawkish stance in the near term.
