Fed’s Williams, Kashkari Point to New Uncertainty From Iran War

Two Federal Reserve officials on Tuesday said the US-Israeli attacks on Iran had introduced another element of uncertainty for policymakers, with the most important question centering on how long energy prices might remain elevated.Author of the article:You can save this article by registering for free here. Or sign-in if you have an account.(Bloomberg) — Two Federal Reserve officials on Tuesday said the US-Israeli attacks on Iran had introduced another element of uncertainty for policymakers, with the most important question centering on how long energy prices might remain elevated. Subscribe now to read the latest news in your city and across Canada.Subscribe now to read the latest news in your city and across Canada.Create an account or sign in to continue with your reading experience.Create an account or sign in to continue with your reading experience.“Right now it’s just too soon to know what imprint this has on inflation and for how long,” Minneapolis Fed President Neel Kashkari said at the Bloomberg Invest conference in New York. Kashkari, who had previously penciled in one quarter-point interest-rate cut in his outlook for the year, said he was no longer as confident about that call. “Now, with the geopolitical events, we need to get a lot more data in.”Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.New York Fed President John Williams, speaking at a separate event, noted the impact on financial markets was so far “reasonably muted” and that oil prices had moved up, but not yet “in a dramatic way.”“We’ll have to see how persistent this is,” Williams told reporters after a speech in Washington in response to a question about the potential impact on US inflation.Oil prices surged after the US and Israel launched attacks across Iran over the weekend. Treasury yields and gold climbed as investors weighed the economic impacts of a prolonged Middle-East conflict, and its potential effect on inflation.A jump in gas prices may affect Europe “much more profoundly,” with potential spillover effects globally Williams added. “The important question is quantitatively how big of effect does that have on the US and how persistent those effects are in terms of price stability”, Williams said. Speaking earlier at an event organized by America’s Credit Unions, Williams said additional interest-rate cuts will be warranted if inflation slows further once most of the impact of tariffs has passed.“If inflation follows the path I expect, further reductions in the federal funds rate will eventually be warranted to prevent monetary policy from inadvertently becoming more restrictive,” Williams said during his prepared remarks. Tariffs should have some additional impact on consumer prices during the first half of the year before the inflation rate declines to 2.5% at the end of 2026, and to 2% in 2027, he added.At the same time, Williams said there’s been “promising signs of stabilization” in the labor market during recent months, and the unemployment rate should continue to edge down this year and next, helped by “solid” growth. He expects the economy will grow by around 2.5% this year. “Given the lack of second-round effects and well-anchored inflation expectations, I expect the tariffs largely to have one-off effects on prices,” he said, adding that the peak effect of the levies will pass “later this year.” Given the full impact of tariffs is yet to be felt, progress toward the Fed’s 2% inflation goal “has temporarily stalled.”A growing chorus of Fed officials are pointing to signs of stabilization in the labor market following a pick-up in hiring in January and a drop in the unemployment rate. Many policymakers would now prefer to wait for further signs that inflation is falling back to the Fed’s 2% goal. A few other policymakers, however, worry the lack of widespread job creation could still warrant more rate cuts.Williams said the job market remains in an “unusual low-hire, low-fire” dynamic. He also noted there’s a more pessimistic perception from households surveys, which provide a “cautionary signal” for policymakers to monitor.At a separate event, Kansas City’s Fed President Jeff Schmid noted that recent data seem to suggest that the labor market is in balance, though he reiterated inflation remains too high with signs of pressure on both tariff-impacted goods and services. “Inflation has been above the Fed’s objective for nearly five years now,” Schmid said in remarks prepared for the event in Denver. “I don’t think we have room to be complacent.”—With assistance from Catarina Saraiva, Michael McKee and Jonnelle Marte.Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. 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