Fed's Williams: Recent data have been encouraging on inflation

In an interview with CNBC on Wednesday, New York Federal Reserve (Fed) Bank President John Williams said that tariffs and the Middle East war are big drivers of inflation over target, per Reuters.

Williams flags strong economy-driven yields as Fed stays focused on 2% inflation goal

Fed's Williams delivered a slightly more hawkish-than-usual tone, with a 6/10 FXS Speechtracker score marginally above the 5.9/10 historical average, emphasizing that rising yields reflect a strong economy and robust outlook rather than an unanchored inflation profile. By stressing that yields are being pushed up by strong investment demand and geopolitical factors such as tariffs and the Middle East conflict, while highlighting contained inflation expectations and a trend toward lower inflation, the speech framed higher yields as an information signal rather than a policy trigger. The insistence that achieving 2% inflation remains “job number one” and that the labor market is “stable and solid” underscores a data-dependent stance that keeps the bar high for any rapid policy easing.

The FXS Fed Sentiment Index slipped by 1.42 points to 127.44, signaling a modest pullback in perceived hawkishness even as the overall level remains firmly above the neutral 100 mark. This configuration suggests that, despite a slight softening in tone versus recent communications, the Fed is still viewed as operating in hawkish territory, consistent with a strong economy narrative and a cautious approach to easing priced into the FXS Speechtracker.

Key takeaways

"Yields don't seem to be driven by inflation outlook."

"It's more about economy driving financial conditions."

"There is coorelation between bond yields and Middle East conflict."

"Bond yields are important information for Fed."

"Fed looks at totality of data when setting monetary policy."

"It's Fed's job to get price stability, 2% inflation is job number one."

"Strong investment demand is pressuring yields up."

"Not seeing second round inflation impact from tariffs."

"Inflation expectations are contained."

"Seeing trend toward lower inflation."

"The labor market is stable and solid."

"Need to get to 2% inflation in forseeable future."

"Recent data have been encouraging on inflation."

"Optimistic about long term economic impact from artificial intelligence."

"Supported July FOMC meeting outcome."

"Need to collect data for next FOMC meeting."

"Things are working really well with monetary policy implementation."