MARCH 23, 2026 AT 08:24 PM
Fed's Daly (2027 voter, dove) says there are at least two possible paths for the US economy
Importance
Level 1
- In one, the conflict in the Middle East resolves quickly, oil and energy prices fall, and the impact on the U.S. economy is short-lived and muted. Under those circumstances, it likely would make sense to look through the temporary rise in energy prices, assuming inflation expectations remain well anchored.
- But if the conflict becomes more protracted, a different scenario is possible. Disruptions in energy supply and associated cost pressures could persist, with increased risks for higher inflation, slower growth, and a weaker labor market. This would amplify the current tradeoffs for monetary policy, making it harder to balance the risks to both sides of our dual mandate.
- There is no single most-likely path. With policy in a good place, we need to remain flexible, able to respond to rapidly evolving risks.
- Offering too much forward guidance in an uncertain world risks conveying a false sense of certainty, reducing rather than improving transparency, and making it harder for the public to clearly predict how the FOMC will react.
- Recognizing the uncertainty, examining potential scenarios, and staying focused on restoring price stability and supporting full employment no matter how the economy evolves is optimal communication and appropriate policy.