Fed Governor John Williams said bond yields are an important input for the Fed;
the recent rise in yields largely reflects strong economic activity, an
optimistic outlook and robust investment demand, with some linkage to the Middle
East conflict, but so far yields do not appear to be driven by a change in the
inflation outlook. He said the Fed will weigh all economic data and that price
stability remains the primary objective — returning inflation to 2% is the top
priority. Tariffs and the Middle East war are the main factors keeping inflation
above target; he has not seen evidence of second-round inflation effects from
tariffs and inflation expectations remain contained. Recent inflation prints are
encouraging and overall trend is downward, though services inflation remains
clearly elevated. The labor market is stable and still tight; Williams said the
Fed needs to drive inflation back to 2% in the foreseeable future and wants more
data before making the next policy move, continuing to gather information ahead
of the next FOMC. He said he supports the July FOMC decision, views the current
policy rate as appropriate, and that policy implementation is proceeding
smoothly.
