The Federal Reserve's third-ranking official says the inflationary impact of tariffs has peaked, and AI investment has not yet formed a bubble.

New York Fed President John Williams said the Federal Reserve’s decision to hold interest rates steady in July aligns with current economic conditions: the labor market remains stable, economic growth is solid with no signs of overheating, justifying no immediate rate hikes. Williams noted that the impact of tariffs on U.S. inflation has mostly passed through and is unlikely to drive significant further inflation in the coming months. In the baseline scenario, inflationary pressures from energy prices and tariffs are near their peak, and factors that previously pushed inflation higher are expected to gradually ease. He stated that the Middle East conflict has lifted oil prices, but markets generally expect the situation to eventually de-escalate, with prices likely to fall once energy trade resumes. Still, energy markets remain highly uncertain. Williams reiterated that U.S. inflation is projected to return to the Fed’s 2% target by 2028. He pointed out that falling housing costs, declining goods inflation, and cooling core services inflation will continue to pull inflation lower. On the AI investment boom, Williams said he sees no signs of a bubble at present. He views AI as a general-purpose technology with transformative potential; current investment enthusiasm reflects market expectations of productivity gains and new business models, though competition among different firms and technology paths may lead to market volatility in the future. Additionally, Williams said the Fed scrapped forward guidance due to high current economic uncertainty, noting that policy should be adjusted dynamically based on data obtained at each meeting rather than setting a pre-determined path. He stressed that the Fed will continue to independently assess economic data and remain committed to bringing inflation back to its 2% target.