Fed's Williams (voter) says Middle East War is already lifting inflation, amid challenges, monetary policy is well positioned
OUTLOOK
- Economic outlook highly uncertain amid war impact.
- Seeing emerging signs of supply chain disruptions.
- Sees 2026 growth of 2-2.5% (vs Fed median of 2.4%).
- Fed rate control system is working very well.
LABOUR MARKET:
- Expects unemployment to stay between 4.25-4.50% (vs Fed 2026 median projection of 4.4%).
- Labour market is sending mixed signals.
INFLATION:
- Expects inflation will return to target in 2027, after hitting 2.75-3.00% this year on energy prices (Fed median sees PCE at 2.7% in 2026; and Fed median sees inflation back at target in 2028).
- Some of the energy shock is now passing through into other prices.
- Swift end to conflict should help ease inflation pressures.
- Expects tariff impact on inflation to wane this year.
Context
Fed's Williams highlights the current geopolitical tensions as a key factor in rising inflation, indicating potential supply chain disruptions. While the Fed's monetary policy seems well-positioned, the outlook remains uncertain, particularly with inflation expected to peak this year before gradually returning to target by 2027. This speaks to potential ongoing pressures in the inflation landscape, influencing market expectations for future rate decisions and economic growth trajectories.
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