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John Williams

Federal Reserve Bank of New York President John Williams said Wednesday that he's "laser-focused" on the stubbornly low U.S. inflation rate , possibly a sign that he's inclined to cut official interest rates at a central-bank meeting later in September.

In a speech in New York, Williams said that low inflation is "indeed the problem of this era" and a "reflection of the broader economic picture."

Williams is a top economic-policy advisor to Federal Reserve Chairman Jerome Powell, so his opinion could prove influential as monetary officials for the U.S. central bank prepare to meet later this month to discuss and potentially make changes to the benchmark interest rate. As president of the New York Fed, Williams has a regular seat on the U.S. central bank's monetary-policy committee meetings in Washington.  

His emphasis on inflation, at a time when the global economy is weakening and as President Donald Trump ratchets up his trade war with China, signals that Williams might be inclined to overlook the risks of further rate cuts, such as higher consumer prices.

Usually the Fed raises interest rates to stimulate borrowing - and thus economic activity - when unemployment is high or inflation is low, and it cuts rates to tamp down activity when joblessness is low or inflation high.

The conundrum facing Fed officials now is that both unemployment and inflation are at historically low levels - possibly the result of more than a decade of loose monetary policy by central banks around the world since the financial crisis of 2008.  

Some Fed officials have warned that more rate cuts might just spur excessive risk-taking by investors, leading to asset-price bubbles that might eventually pop.

Economists and Wall Street analysts also worry aloud that lower interest rates might squeeze profit margins at large banks like JPMorgan Chase (JPM - Get Report) and Bank of America (BAC - Get Report) , prompting them to scale back the pace of new lending. That presents a new economic worry since the dynamic could choke off credit to borrowers at a time when U.S. growth is slowing. 

The latest inflation data, under the Fed's preferred measure, show core consumer prices rising 1.6% in the 12 months through July, below the Fed's target of 2%. 

Powell cited the stubbornly low inflation rate in July as a reason for cutting interest rates for the first time in more than a decade. The official rate was lowered then by 0.25 a percentage point to a range between 2% and 2.25%.    

Trading in Chicago futures markets indicates that investors see a 100% probability that the Fed will cut rates by at least 0.25 a percentage point at the next meeting, scheduled for Sept. 17-18. And there's better than 50% odds that rates will get cut by another 0.5 a percentage point over the rest of the year.

Trump has called for further rate cuts to provide "support" for his trade war with China, even as he tweeted that the economy is "too strong." 

Williams said he'll closely monitor domestic and foreign economic data in the coming weeks.   

"When I think about the road ahead, my No. 1 goal is to keep the expansion on track," Williams said. "This is how we will keep unemployment low and bring inflation back to 2%."