Williams core PCE 0.2% was the threshold he cited for a continued disinflation trend, while higher monthly readings could call for a policy response.
Speaking last week at a New York Fed symposium, Williams said AI-driven demand was his main inflation concern. He said the central bank could look through temporary energy shocks and tariff-linked price rises. However, he added that policymakers could not ignore a lasting demand boost if AI pushed demand above supply.
Williams said monthly Core PCE growth of 0.2% in the second half of this year would match his view that disinflation is still in place. He also said a higher pace would point to inflation that is proving more persistent. Therefore, he said monetary policy would need to respond if inflation turned more stubborn.
Williams Core PCE 0.2% Threshold
The article said monthly Core PCE has averaged 0.34% so far this year. That is above the pace Williams described. Meanwhile, the article noted that Williams is focused on the second half of the year.
It also said some FOMC members may not wait that long before backing a rate increase. According to the article, markets now price a 33% chance of a rate hike in July. That rises to 70% for September.
Markets Watch Next Inflation Data
The article said the bar for a July move remains very high. However, it added that an upside surprise in the next Core CPI report could lead to a couple of dissenting votes for a hike.
It also cited comments from the last FOMC press conference. There, Fed Chair Warsh said markets work best when they respond to incoming data. He added that markets are less efficient when they must guess how the Federal Reserve will react to that data.
Warsh also said financial markets are the most important source of information for the central bank. The article said a stronger-than-expected CPI reading could lift July hike odds above 50% and open the way for a rate increase.
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