New York Federal Reserve President John Williams warned that the U.S. economy faces “significant and unpredictable risks” from the Iran war, such as elevated oil prices, inflation, and labor market uncertainty. At the same time, he also believes that interest rates are “well positioned” to address these challenges.
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Trade QQQ with leverage“This echoes the severe shortages and supply disruptions that the world economy experienced in 2021 as it emerged from the pandemic,” he said on Monday.
Gas Surge Fuels Inflation Risks
The average price of a gallon of gas in the U.S. has surged 50% since the start of the war on February 28 to $4.46, raising the risk of persistent inflation. Williams expects inflation to average around 3% this year before falling to the 2% level in 2027. He also expects gross domestic product (GDP) to grow between 2% and 2.25% this year with the unemployment range hovering between 4.25% and 4.5%.
The Fed is expected to hold rates steady for the entire year, with the CME FedWatch tool pricing in a 62.4% probability for that outcome. A rate hike, with 29.3% odds, is also on the table.