By Michael S. Derby
NEW YORK, June 3 (Reuters) - New York Federal Reserve President John Williams said on Wednesday he does not expect upside risks to inflation caused by the war in the Middle East to be long-lasting and reiterated there was no need at this time to change U.S. monetary policy.
"Right now, I'm not that worried" about "dramatic second-round effects or persistent inflation" resulting from the surge in prices due to the war, the ongoing impact of tariffs and artificial intelligence investment,
Williams said in an interview with Yahoo Finance.
He said inflation expectations are "well anchored" amid a stable job market that is not creating upward inflation pressures. Williams added that he viewed the rise in energy prices as a "one-time kind of effect" and did not expect them to increase dramatically next year and in 2028.
Williams repeated his view that Fed policy "is exactly in the right place" and that he didn't see a need to either raise or lower interest rates. "I don't see an obvious argument ... that we should change interest rates, but I also don't see an obvious kind of direction where we would go in the future."
The Fed is expected to leave its benchmark interest rate in the 3.50%-3.75% range at its June 16-17 policy meeting, as its policymakers continue to gauge the inflationary impact of the war and the uncertainty clouding the near-term economic outlook.
Fed officials agree a swift end to the conflict in the Middle East, which has led to a surge in the price of oil and other commodities, would present smaller risks for the U.S. economy.
A number of policymakers have raised the prospect of a rate increase at some point if the rising price pressures do not subside. With inflation having been above the Fed's 2% target for years, some of them are worried this latest shock carries a greater risk of unmooring inflation expectations.
Officials are closely watching to see if that happens.
Although financial markets are pricing in a rate hike at the Fed's meeting in December, Williams said investors are coming up with their own monetary policy outlook as they respond to incoming data. He said the central bank's current policy stance remains modestly restrictive, although he added that its benchmark interest rate is not far from its neutral level.
(Reporting by Michael S. Derby; Editing by Paul Simao)
