New York Fed President Williams worries war will slow growth, aggravate inflation

• Williams noted 'increasing disruptions' in energy-related supply chains, with the New York Fed's own data showing conditions in March 2026 were the most strained since early 2023
• He projects real GDP growth of 2%-2.5% for 2026 with inflation around 2.75%-3%, not returning to the Fed's 2% target until 2027
• Markets are pricing in 100% probability the Fed holds rates steady at its April 28-29 meeting, with no cuts expected for the remainder of 2026

Summary

Key Development: New York Federal Reserve President John Williams warned Thursday that the Iran war is already impacting the U.S. economy by driving up prices and slowing growth, raising concerns about potential stagflation.

Main Points:

Williams stated that the conflict has "intensified the uncertainty" around economic conditions and poses threats to both sides of the Fed's dual mandate—price stability and low unemployment. The policymaker noted "increasing disruptions" in supply chains, particularly for energy and related goods, with the New York Fed's data showing March conditions were the most strained since early 2023.

Energy price increases are cascading through the economy, affecting fuel costs, airfares, groceries, fertilizer, and other consumer products. Williams suggested these effects might partially reverse later in 2026 if energy supply disruptions ease, though he acknowledged risks of a larger supply shock creating stagflation conditions.

Economic Outlook:

Despite concerns, Williams projects:

• Real GDP growth: 2%-2.5% in 2026
• Inflation: 2.75%-3% before returning to the Fed's 2% target in 2027
• Longer-term inflation expectations remain anchored

Policy Implications:

The Federal Open Market Committee (FOMC), where Williams is a permanent voting member, last adjusted its benchmark rate to 3.5%-3.75%. Markets expect the Fed to hold rates steady at the April 28-29 meeting, with no cuts anticipated in 2026. Williams stated current monetary policy is "well positioned" to balance employment and price stability goals, though he did not commit to a specific future policy direction given the "highly uncertain" outlook.