(Yahoo! Finance) - New York Fed president John Williams said Monday that interest rates are “well positioned” as the Middle East conflict has introduced “significant and unpredictable risks” to the economy.
Williams said that “notable” supply-chain disruptions have already emerged, echoing the severe shortages and supply disruptions that the world economy experienced in 2021 as it emerged from the pandemic.
But he noted that the job market is not as strong as it was post-pandemic — and that, even though input costs are higher, labor costs are not, so companies cannot pass on higher prices to consumers and exacerbate inflation as was the case in 2021.
“Elevated levels of inflation, mixed signals from the labor market, and heightened uncertainty from the Middle East conflict present an unusual set of circumstances, but the current stance of monetary policy is well positioned to balance the risks to our maximum employment and price stability goals,” Williams said in a speech in New York.
The Iran war has led to a surge in the price of oil, which not only has pushed up fuel costs, but also led to higher airfares, groceries, fertilizers, packaging, and other consumer products.
Williams warned that the conflict could result in large, broad-based supply shocks that could have severe consequences.
“Because the global economy is highly integrated, the emerging supply-chain issues will have wide-ranging consequences,” he said.
Right now, Williams said the future is difficult to see, and risks to both inflation and the job market have increased.
Williams attributes a full percentage point of the 3.5% inflation rate in March, as measured by the Personal Consumption Expenditures price index, to a combination of higher tariffs and higher energy prices. He said he expects inflation to remain above the Fed’s 2% goal for the next few quarters on account of higher energy prices and tariffs, which he said continue to be “borne overwhelmingly by domestic producers and consumers.”
Though he anticipates the pass-through of tariffs will be mostly completed in the next few months, he said a new round of tariffs coming could put renewed upward pressure on import prices.
Williams expects inflation to be about 3% this year, before dropping to the Fed’s 2% target next year. He expects economic growth to remain buoyant between — 2% to 2.25% — this year and next.
Williams said outside of energy and imports, inflation has remained stable, there are no signs of significant “second-round” effects from tariffs spilling over to the rest of the economy, and inflation expectations remain in check.
By Jennifer Schonberger - Senior Reporter
May 4, 2026
