NY Fed: Supply Chain Pressures Hit Highest Since 2023
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- NY Fed's Global Supply Chain Pressure Index for March reached its highest level since January 2023, when the reading stood at 1.09 and pressures were already abating
- The NY Fed did not state a cause, but the rise is almost certainly tied to disruptions from the Middle East war started by U.S.-Israeli attacks on Iran
- Even with the jump, the March reading remains well below the pandemic-era peak of 4.49 from December 2021, and roughly tracks pre-COVID run-up levels once pandemic factors are excluded
- NY Fed President John Williams warned the Middle East war 'could result in a large supply shock with pronounced effects that simultaneously raises inflation — through a surge in intermediate costs and commodity prices — and dampens economic activity'
- Williams said overall supply chain issues aren't yet 'significant' but disruptions tied to energy and related goods are already visible, adding that 'uncertainty around the future path of inflation is high'
- The inflation outlook is calling into question whether the Fed can deliver the single rate cut it projected in forecasts at the March FOMC meeting
- LHMeyer analysts wrote that 'even a quick resolution will not lead to normalization of supply chain conditions in short order' and have already pared back their 2025 rate-cut forecasts
Why it matters: NY Fed President Williams warned the Middle East war risks a large supply shock that raises inflation and dampens activity simultaneously. LHMeyer analysts have already cut their 2025 rate-cut forecasts, putting the single cut the Fed penciled in at its March meeting in jeopardy. Energy-related disruptions are feeding through supply chains ahead of broader inflation data, eroding the progress the Fed had made toward its 2% target before tariffs and war intervened.
