New York Fed President John Williams warned that rising energy prices were already fueling inflation, as the Iran war drove up costs across the economy. “Developments in the Middle East are leading to significant increases in energy prices,” he noted, with effects now evident not only in fuel but also in the prices of airline tickets, groceries, and other consumer goods.
Williams stressed that the shock carries two-sided risks. While energy prices could fall if supply disruptions are resolved, he warned that the conflict could develop into a broader supply shock that “simultaneously increases inflation… and dampens economic activity.” This dynamic is “already starting to emerge,” he said, highlighting early signs of stagflationary pressures.
Despite these risks, Williams struck a measured tone regarding policy. He said monetary policy was “well placed to balance risks” to both inflation and employment, without indicating any immediate shift in direction. Although he acknowledged that the outlook was “highly uncertain”, he maintained his forecast of strong growth of 2% to 2.5% this year, with inflation of 2.75% to 3% before gradually returning to target by 2027, supported by stable long-term inflation expectations.
