\n<\/p>\n
New York Fed President John Williams expressed concern Thursday about the Iran war\u2019s impact on the economy, saying it already has shown signs of hiking prices and slowing growth.<\/p>\n
In a speech delivered to bankers in his home district, Williams noted that the conflict has \u201cintensified the uncertainty\u201d around national and local conditions. <\/p>\n
While he generally expressed confidence that growth would continue and inflation would ease through the year, he said there are threats to both sides of the Fed\u2019s dual mandate for stable prices and low unemployment.<\/p>\n
\u201cAssuming energy supply disruptions ease reasonably soon, energy prices should come down, and these effects should partially reverse later this year,\u201d Williams said. \u201cHowever, the conflict could also result in a large supply shock with pronounced effects that simultaneously raises inflation \u2014 through a surge in intermediate costs and commodity prices \u2014 and dampens economic activity. This has begun to play out already.\u201d<\/p>\n
Such a condition \u2014 slow growth and high prices \u2014 is commonly referred to as stagflation and presents a toxic mix for central bank policymakers who would be left to choose which side to prioritize.<\/p>\n
Fed Chair Jerome Powell<\/a> recently rejected that characterization for the U.S. economy, but Williams\u2019 comments indicate that it remains a concern for policymakers, if in a reduced sense from the severe episode prevalent in the late 1970s and early \u201980s.<\/p>\n Williams pointed out there have been \u201cincreasing disruptions\u201d in supply chains specifically concerning energy and related goods. The New York Fed\u2019s own Global Supply Chain Pressure Index<\/a> showed that conditions in March were the most strained since early 2023.<\/p>\n \u201cNot only are elevated energy prices showing up in the rising cost of fuel, but there are also pass-through costs in the form of higher airfares, groceries, fertilizer, and other consumer products,\u201d he said.<\/p>\n Under the current conditions, Williams said monetary policy \u201cis well positioned to balance the risks to our maximum employment and price stability goals.\u201d<\/p>\n The Federal Open Market Committee, of which Williams is a permanent voting member, decided in March to stay on hold<\/a>, with its benchmark rate targeted between 3.5%-3.75%. Markets are pricing in a 100% probability that the committee stays on hold again at its April 28-29 meeting, and in fact do not expect any cuts this year.<\/p>\n Williams did not commit to a future policy stance. While he noted that the outlook is \u201chighly uncertain,\u201d he still sees real gross domestic product<\/a> advancing at a 2%-2.5% clip this year, with inflation around 2.75%-3% before eventually drifting back to the Fed\u2019s 2% target in 2027. Williams noted that longer-term inflation expectations are largely in check.<\/p>\n<\/div>\n
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