Williams says anchored expectations prevent second-round wage-price effects that prolonged 1970s shocks.
“Well-anchored inflation expectations short-circuit so-called second-round effects in wage and price setting that exacerbate and prolong the impacts of the kinds of shocks we saw during the 1970s.”
Williams says short- and medium-term inflation expectations returned to pre-pandemic levels after April tariff pullback.
“And with the pullback in tariffs since early April, short- and medium-term inflation expectations have receded back close to their pre-pandemic averages.”
Williams sees no second-round effects from tariffs, citing anchored expectations and no supply chain bottlenecks.
“In particular, inflation expectations are very well anchored, no broad-based supply chain bottlenecks have emerged, labor markets are not creating inflationary pressures, and wage growth has moderated.”
Williams states anchoring inflation expectations is a bedrock principle for maintaining low and stable inflation.
“This principle has become a bedrock of modern central banking, as economic analysis and history have shown that anchoring inflation expectations is important in maintaining low and stable inflation.”
Williams notes inflation expectations have receded to pre-pandemic averages after April tariff pullback.
“Longer-run inflation expectations have remained stable. And with the pullback in tariffs since early April, short- and medium-term inflation expectations have receded back close to their pre-pandemic averages.”