Williams: Iran War Drives Inflation Above 3%, Fed Holds Steady
Get the Finance newsletter
Daily finance — markets, central banks, M&A, the prints that move money. Free.
- John Williams said the Middle East conflict is driving energy prices higher and already lifting overall inflation, with supply chain disruptions passing through into airfares, groceries, fertilizer, and other consumer products.
- Williams warned a prolonged war could trigger "a large supply shock" that simultaneously raises inflation and dampens economic activity, adding that the process "has begun to play out already."
- Williams told reporters he expects inflation to run "well above 3%" over the next several months on an annualized basis because of energy price increases, though he characterized underlying inflation dynamics as a "mixed picture."
- The Federal Reserve held its policy rate at 3.5%-3.75% at its mid-March meeting and is not expected to change rates at its April 28-29 meeting, with Williams saying it is "not a time to try to give strong forward guidance."
- Williams projected inflation of 2.75%-3% this year before retreating to the 2% target in 2027, with unemployment at 4.25%-4.5% and growth between 2% and 2.5%.
- Williams struck a sanguine tone on financial markets, saying the "calm version" of the outlook reflected in asset prices signals confidence in a short-lived war and lower U.S. downside risks relative to more energy-dependent nations.
Why it matters: Williams' warning that inflation is already above 3% from the war's energy shock puts the Fed in a bind the source explicitly flags: high inflation calls for rate hikes, but energy-driven price surges also depress demand, which would argue for easing. With no move expected at the April 28-29 meeting, the central bank is betting the war stays short and the spike fades, leaving its 2% target achievable in 2027.
