Fed’s Williams: Middle-East Developments Have Added Significant Economic Uncertainty
The Iran war will likely push inflation higher in coming months, the New York Fed President said, but he signaled the central bank has room to wait and see if those pressures last
- New York Fed President John Williams said the Iran war will likely push inflation higher, but the Fed’s current rate setting allows it to wait.
- The Iran war and global oil market shock have created a challenging environment for the Fed since Feb. 28.
- Traders’ bets shifted toward the Fed holding policy steady this year, as the labor market has stabilized since last summer.
The Iran war will likely push inflation higher in coming months, a senior Federal Reserve official said Monday, but he signaled the central bank’s current interest-rate setting gives it room to wait and see if those pressures last.
In a speech on New York City’s Staten Island, New York Fed President John Williams said that the Middle East conflict has “added a great deal of uncertainty” and has already begun lifting prices. That effect would likely reverse after the conflict ends, Williams said. But he warned that while it persists, it could create a complex economic shock that could both fuel additional inflation and slow economic growth.
For now, Williams signaled, he is in no hurry to support adjustments to the Fed’s interest-rate target, which has held steady at 3.5% to 3.75% since December. “The current stance of monetary policy is well positioned to balance the risks to our maximum employment and price-stability goals,” Williams said, according to a published text of his remarks.
Since attacks began Feb. 28, the Iran war and the resulting shock to global oil markets have created a challenging environment for the Fed. Rising energy costs have already pushed up gasoline prices.
Policymakers are anxious to see whether those increases spur expectations of higher inflation in the long-term, a dynamic that can itself generate inflation. Williams noted Monday that so far, there is no sign that is happening.
On the other hand, the supply crunch for oil, fertilizer and other critical commodities could push down economic activity by straining households’ and businesses’ budgets.
Speaking earlier Monday, Chair Jerome Powell said it is too early to say how the Fed would confront that dilemma.
“We’re not really facing it yet because we don’t know what the economic effects will be,” Powell said.
At the start of the year, economists and investors widely believed the Fed would opt for a few more rate cuts in 2026, continuing the easing cycle that began in late 2024. This month, however, traders’ bets have shifted toward the possibility that inflation from the Iran war will lead the Fed to hold policy steady this year.
Although the labor market has cooled over the past few years, Williams pointed to signs that it has stabilized since last summer, a development that could allow the Fed to take its time considering whether to bring rates lower.
“Recent indicators of labor market conditions do not point to a sharp change in the balance between labor demand and supply,” Williams said. He added that some surveys suggest that sedate hiring has made job hunting especially frustrating for those out of work.