Fed Governor Williams: “We’ll Have Inflation Under Control in 2027”

Federal Reserve Bank of New York President John Williams flew to Santiago this week to deliver a talk—fittingly titled “Navigating Unpredictable Terrain”—at the Central Bank of Chile’s centennial bash. While gold bulls were busy bidding the metal to a fresh high of $4,098 per ounce on Friday, Williams told the audience he still sees U.S. inflation gliding back to the Fed’s 2 percent goal, albeit on a longer runway. Acknowledging that the remarks were his own and “do not necessarily reflect those of the Federal Open Market Committee,” the veteran policymaker argued that recent tariff hikes are only a speed bump, not a derailment.

Williams reminded listeners that U.S. inflation, measured by the Personal Consumption Expenditures index, crested at “over 7 percent” in 2022 before easing to “around 2 ¾ percent” this year. Even so, he conceded the Fed’s December 2024 forecast for a 2.5 percent reading in 2025 has been upset by fresh import levies, which have “temporarily stalled” progress. “My estimate is that increased tariffs have contributed about one half to three quarters of a percentage point to the current inflation rate,” he said, adding that he sees no “second-round” price spiral. In his view, these tariff effects should “fade over the rest of this year and the first half of next year,” clearing a path to hit 2 percent—though not until 2027.

To keep that glide path intact, the Fed has already trimmed its policy rate twice this year, each time by 25 basis points. Williams “fully supported” both moves and thinks there is “room for a further adjustment in the near term,” calling today’s stance “modestly restrictive” but inching toward neutral. For now, the labor market appears cooperative: unemployment has crept back to pre-pandemic norms without the mass layoffs that typically greet tighter money. Skeptics, however, may wonder why a supposedly cooling economy keeps sending gold to record levels.

Latin America offers a contrasting case study. Central banks in Brazil, Chile, Mexico, and others began hiking in early 2021—months before the Fed—and by much steeper margins. Williams credited their “credible inflation-targeting frameworks” for preventing capital-flight chaos even as rates whipsawed. Yet Chile’s own Consumer Price Index still surged “over 14 percent” during the post-pandemic spike, well above its formal 3 percent target, underscoring how hard it is to bottle inflation once it breaks loose.

The Fed’s 2 percent aspiration dates back to 2012, and Chile’s 3 percent goal to 1999, but both central banks remain short of their marks. With tariffs sticky, government deficits hefty, and gold flirting with $4,100, investors seem to be hedging against a longer spell of price instability than the models suggest.