Fed's Williams: Inflation Too High, Policy 'Well Positioned' to Lower It
1h ago|4 min readStandard
Fazen Markets Editorial Desk
Collective editorial team · methodology
inflationfederal-reserve
Fazen Markets Editorial Desk
Collective editorial team · methodology
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Federal Reserve Bank of New York President John Williams stated publicly on June 25, 2026, that inflation in the United States remains too high and that current monetary policy is well positioned to lower price pressures. He described the restrictive policy stance as appropriate, providing no signal for imminent rate cuts. Core PCE inflation, the Fed's preferred gauge, most recently stood at 2.8% year-over-year. The central bank's target for this metric is 2.0%.
Williams's remarks arrive during a period of sustained policy restraint. The Federal Open Market Committee has held its benchmark federal funds rate target range at 5.50%-5.75% since December 2025. This followed a rapid hiking cycle that began in March 2022, raising rates by a cumulative 525 basis points to combat a four-decade inflation surge. The Fed's balance sheet has also contracted by over $2.2 trillion from its pandemic-era peak via quantitative tightening.
The current macro backdrop features resilient labor markets and cooling, yet sticky, inflation. The unemployment rate has remained below 4.0% for 36 consecutive months while wage growth has moderated to an annual pace of 3.9%. The 10-year Treasury yield has oscillated near 4.4%, reflecting investor uncertainty about the path to the Fed's 2% inflation goal.
The trigger for this public commentary is the forthcoming FOMC meeting on July 29-30. Williams, as Vice Chair of the committee, helps shape official policy. His public speeches are scrutinized for guidance on the Fed's reaction function. His emphasis on a "well positioned" policy suggests the central bank sees no immediate need for further rate hikes.
Key inflation and growth metrics illustrate the Fed's challenge.
| Metric | Latest Level | Pre-Pandemic Average (2017-2019) | Target/Gap |
|---|---|---|---|
| Core PCE YoY | 2.8% | 1.7% | +0.8% above 2% target |
| Headline CPI YoY | 3.1% | 1.8% | +1.1% above 2% implied target |
| 3-Month Annualized Core PCE | 2.5% | N/A | Above 2% target |
Williams highlighted that the three-month and six-month annualized core PCE measures are around 2.5%, showing progress but not yet sufficient. The Fed's preferred core inflation gauge has been above 2.5% for 49 consecutive months. This persistence contrasts with market expectations at the start of 2026, which priced in three 25-basis-point cuts.
The current fed funds rate range of 5.50%-5.75% implies a real interest rate, adjusted for core PCE, of approximately 2.8%. This is a historically restrictive level compared to the estimated neutral rate of 0.5%. The policy rate exceeds the yield on the 10-year Treasury note by roughly 115 basis points, maintaining a deeply inverted yield curve.
The Fed's patient, data-dependent posture directly impacts market pricing and sector performance. Interest rate-sensitive sectors face continued pressure. The KBW Bank Index (BKX) is down 5.2% year-to-date, underperforming the S&P 500's 8.1% gain. Banks like JPMorgan Chase (JPM) and Bank of America (BAC) see net interest margin compression as deposit costs remain elevated amid high policy rates.
Growth-oriented technology stocks with high valuations, particularly in software (IGV ETF), are vulnerable to sustained higher discount rates. Real estate investment trusts (VNQ ETF) underperform, with commercial property values pressured by high financing costs. A counter-argument is that strong corporate earnings and economic resilience limit downside.
Positioning data shows asset managers are net short Treasury futures, betting yields will stay elevated. Money market fund assets remain near a record $6.2 trillion, indicating cash is parked on the sidelines. Flow into inflation-protected securities (TIP ETF) has increased by $4.7 billion over the past month, signaling persistent inflation concerns.
The immediate catalyst is the June Consumer Price Index report, scheduled for release on July 11. Markets will scrutinize core services inflation, particularly shelter costs, which comprise over one-third of the CPI basket. The next FOMC decision and updated Summary of Economic Projections are due on July 30.
Key levels to monitor include the 10-year Treasury yield at 4.5%, a breach of which could signal renewed inflation fears. For the S&P 500, the 5,600 level represents a critical technical support zone. The CME FedWatch Tool will show if the probability of a September rate cut shifts significantly from its current 38%.
If core PCE inflation for June, released July 26, prints at or below 2.5% on a three-month annualized basis, dovish sentiment may strengthen. A sustained move in the US Dollar Index (DXY) below 104.00 could indicate mounting expectations for eventual policy easing.
It signals the Fed is not planning to cut rates in the very near term, which will keep upward pressure on mortgage rates. The average 30-year fixed mortgage rate closely tracks the 10-year Treasury yield, which is influenced by Fed policy expectations. With the Fed on hold, mortgage rates are likely to remain elevated, potentially between 6.5% and 7.0%, until clear evidence of inflation returning to 2% emerges. This environment favors locking in rates for homebuyers.
The current cycle is more aggressive in both speed and magnitude. The 2004-2006 cycle raised the fed funds rate by 425 basis points over 24 months. The 2022-2025 cycle delivered 525 basis points of hikes in a more compressed timeframe. Inflation peaked at a higher level this cycle (9.1% CPI in June 2022) versus 5.6% in July 2006. Critically, the Fed paused at a 5.25% rate in 2006 before the Global Financial Crisis, while the current pause is at a higher terminal rate of 5.50%-5.75%.
The Federal Reserve formally targets 2% inflation as measured by the annual change in the Price Index for Personal Consumption Expenditures. It prefers the core version, which excludes food and energy, due to the volatility of those components. Core inflation is considered a better signal of underlying, persistent price trends. The PCE index also has a different composition than CPI, giving more weight to healthcare and less to housing, which the Fed believes more accurately reflects actual consumer spending.
The Fed's policy is restrictive and on hold, prioritizing inflation control over growth risks until data confirms a sustained return to 2%.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.
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