The Fed is monitoring the impact of the Iran conflict on inflation as oil prices rise
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Federal Reserve policymakers are watching conflict with Iran about its potential impact on inflation and consumer prices, as electricity prices have skyrocketed since the outbreak of war.
Oil prices rose briefly above $100 a barrel amid fears of supply disruptions caused by the conflict with Iran, which threatens to cut off the flow of oil from the Persian Gulf through the Strait of Hormuz.
Gasoline prices at the pump have also risen for consumers since the start of the dispute, which could push inflation data higher and complicate interest rate cuts The Federal Reserve policy makers.
New York Fed President John Williams said last week that although there is uncertainty about the impact of the war on the US economy and inflation, past events in which oil prices have increased have not led to a significant change in outlook.
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New York Fed President John Williams said the central bank will have to wait and see how the Iran war will affect energy prices and inflation. (Al Drago/Bloomberg via Getty Images)
“No one can be sure how long this will last or the broad effects… Past experience has shown that the movements in oil prices that we have seen so far do not change the economy, but we will wait and see,” Williams told reporters after a conference held by American Credit Unions.
He noted that war with Iran “is one of those developments that could achieve both of our goals in a contradictory way in the short term – increases inflation and perhaps slower growth globally,” but he added that the transmission of financial markets was “appropriately muted.”
Williams added that interest rate cuts will “eventually” be approved if inflation slows in line with his expectations.
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Minneapolis Fed President Neel Kashkari said the conflict in the Middle East made him question his forecast of a single interest rate cut this year. (Victor J. Blue/Bloomberg via Getty Images)
Minneapolis Fed President Neel Kashkari said at an event hosted by Bloomberg last week that “it’s too soon to know what impact this has on inflation and for how long.”
Kashkari also told Bloomberg that he is now less confident about his initial forecast of one interest rate cut this year, saying “with geopolitical events, we need to get more data.”
Boston Fed President Susan Collins said in a statement to be presented on Friday that she “doesn’t see an urgent need for further policy adjustments” and intends to take “a patient, deliberate approach as appropriate” as she considers her inflation outlook. jobs and downsizing.
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Boston Fed President Susan Collins said the conflicts in the Middle East are a source of great uncertainty for the state of the economy. (Vanessa Leroy/Bloomberg via Getty Images)
“My base shows an uncertain picture of inflation, with risks continuing,” said Collins, adding that “this, combined with recent evidence suggesting a stable labor market, in my view argues against maintaining policy rates at their current, slightly constrained levels for some time.”
Collins added that in his opinion, “great economic uncertainty remains, exacerbated by recent political developments such as the current conflicts in the country. Middle East.”
The Fed’s monetary policy panel, the Federal Open Market Committee (FOMC), will hold its next meeting to decide interest rate policy on March 17-18.
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The market expects the FOMC to leave interest rates unchanged in the current target range of 3.5% to 3.75%, with the CME FedWatch tool showing 97.4% no cut in March.
Reuters contributed to this report.
