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Investing.com -- Federal Reserve Bank of New York President John Williams said the central bank will raise interest rates if needed to bring inflation back to its 2% target, according to his interview with Reuters published Monday.

Williams said he expects inflation pressures to decline gradually if energy prices and trade tariffs have peaked and the economy stays strong. He said "some of the big drivers that pushed up inflation" over the last year and half "will not be at play as much, and then some of the disinflationary forces that we’ve been seeing" should reassert themselves.

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The New York Fed president said his personal forecast is for inflation to fall in the second half of this year and decline further next year. He said current interest rate policy is "well positioned" to return inflation to target.

Williams said "if the economy is not on a trajectory that will bring inflation back down to 2% ... it would absolutely be appropriate to act to get us on a trajectory that does bring inflation back to 2%."

Inflation currently stands well above 2% and has remained above target for more than five years. The Fed’s preferred inflation measure rose 3.7% in June on a year-over-year basis.

Last week, the Federal Open Market Committee kept the federal funds target rate range unchanged at between 3.50% and 3.75%. Williams said he "strongly ... supported the decision of the committee" to hold rates steady.

Three Fed officials dissented at the meeting, with all three saying in statements released Friday that the central bank needs to raise short-term borrowing costs to reduce inflation.

Cleveland Fed President Beth Hammack said "Inflation has remained stubbornly above 2% for more than five years, and I am not confident it will return to our objective on its own."

Williams said he is focused on core inflation data over the next several months to determine whether inflation is moving toward 2% and on a path to reach that goal on a sustained basis by 2028.

The New York Fed president said uncertainty remains high around the economic outlook, particularly regarding energy prices amid renewed Middle East conflict. He said once there is a resolution and shipping traffic resumes, improvement could be swift.

Williams said the Fed will not set monetary policy based on market levels, though the central bank closely monitors financial markets. Long-term bond yields have risen as investors worry inflation pressures will remain high. Futures traders have priced in a chance the Fed will raise rates by year end.

On artificial intelligence investments, Williams said recent volatility in the sector is not surprising. He said leverage levels are not like those that contributed to the financial crisis two decades ago, noting "Most of these businesses have very high earnings, so I’m not as worried about the financial stability from the leverage right now."

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