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'Although we are only seeing relatively modest effects of tariffs in the hard aggregate data so far, I expect those effects to increase in coming months,' Williams said Wednesday in remarks prepared for an event organized by the New York Association for Business Economics. 'Maintaining this modestly restrictive stance of monetary policy is entirely appropriate.'
The Fed has so far held its benchmark rate steady this year and is widely expected to continue doing so when officials gather in Washington at the end of July. Investors are betting the next rate cut will come in September, according to futures.
Williams said he sees tariffs adding about one percentage point to inflation through the second half of the year and into 2026. A weaker dollar 'likely will add somewhat to inflationary pressure going forward' as well, he said.
Inflation data earlier this week indicated President Donald Trump's tariffs on imports have begun to make some goods more expensive. Still, overall consumer prices rose less than expected for a fifth straight month, in part due to more muted increases in services costs.
'We are seeing initial effects of tariff increases on core goods prices,' Williams said, pointing to items like household appliances, musical instruments, luggage and tableware.
The New York Fed chief said he expects economic growth to slow to about 1% this year, and the unemployment rate to rise to around 4.5%.
Speaking to reporters after the speech, Williams declined to comment directly on reports from earlier Wednesday that President Donald Trump would seek the removal of Fed Chair Jerome Powell. Trump later denied the reports.
But the New York Fed chief stressed the importance of an independent central bank to the health of the country's economy.
'It delivers better results for the country, for the people the country, in terms of price stability, economic stability,' he said.
Asked about the status of the US dollar, which has declined more than 8% this year against a basket of developed market currencies, Williams said he was not worried about the appeal of the greenback.
'The reserve currency status of the US dollar is still very much in place,' he said. 'There are a lot of fundamental factors that support the role of the dollar in the US, in global trade and in global financial markets, and that I see is unchanged.'
He said global investors are still attracted to dollar-denominated assets, but many are also preferring to hedge that exposure more than in the past.
(Updates with Williams comments on central bank independence and US dollar in last six paragraphs.)
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