Fed’s Bowman: Extended Middle East Conflict and Energy Shock May Alter Policy
Impact of Middle East Conflict on U.S. Monetary Policy
By Michael S. Derby
Bowman’s Assessment of Economic Effects
May 29 (Reuters) - Federal Reserve Vice Chair for Supervision Michelle Bowman said on Friday the Middle East war's impact on the economy, while still being measured, could lead to persistent rises in inflation that might require tighter monetary policy.
Early Stage Analysis
"It still seems early to assess the size and persistence of the economic effects from the Iran conflict," Bowman said in the text of a speech to be delivered at a conference in Iceland.
Potential Outcomes and Risks
Optimism for Temporary Impact
She said she was "optimistic" that once the war is over, supply disruptions will end and there will be a "temporary" impact on inflation and a "minimal" hit to overall economic activity. But Bowman added, "should disruptions persist well into the second half of the year, we could start to see broader effects on inflation."
Policy Implications of Extended Conflict
She warned, however, that an extended war could change the outlook on monetary policy. If the energy shock that's pushing up inflation were to broaden out into price pressures more broadly, "the more likely I will consider shifting my approach to thinking about the balance of risks," she said.
(Reporting by Michael S. Derby; Editing by Paul Simao)
