FX.co ★ Federal Reserve finds perfect excuse to put interest rates on hold

Inflation in the US remains elevated, but the expected drop in oil prices should significantly cool inflationary pressure, New York Fed President John Williams said.

He noted that oil has already returned to levels seen before the February conflict with Iran, when prices spiked amid an effective blockade of the Strait of Hormuz, which handles about one‑fifth of global oil and LNG shipments. Last month, Washington and Tehran signed an interim peace agreement, although control of the strait remains the main obstacle to a final settlement.

John Williams stressed that the steady decline in both spot and futures energy prices makes him optimistic about near‑term inflation. He evaded saying precisely how this trend would affect interest rates. Instead, he stated his viewpoint on the current monetary policy, which is “well positioned” to deliver the Fed’s dual mandate of price stability and maximum employment.

At its June meeting, the Federal Open Market Committee left the funds rate in a 3.5–3.75% range, though several officials indicated borrowing costs could still rise before year‑end. The minutes of that meeting were released on July 8.

New Fed Chair Kevin Warsh has previously made it clear that the regulator would no longer give markets forward guidance on the future path of interest rates. John Williams backed that approach, saying the central bank should simply monitor developments in the months ahead. Overall, he judged, the US economy is on a solid footing, and the labor market has already stabilized.