Iran War Creates New Macro Risks, Fed Officials Say

04:10 PM EDT, 03/27/2026 (MT Newswires) -- The Middle East conflict has introduced fresh challenges for the US economy, two Federal Reserve officials said Friday, joining a chorus of policymakers raising concerns about the economic fallout from the US-Israel war with Iran.

Oil and gas prices have surged amid the effective closure of the crucial Strait of Hormuz, which carries around one quarter of global seaborne oil trade. Energy infrastructure in the Gulf has also been damaged as the conflict spread across the Middle East.

Philadelphia Fed President Anna Paulson said the war poses "new risks" to inflation and economic growth. Paulson is a Federal Open Market Committee voter this year.

"If inflation were at the (Fed's) 2% target, I would feel more comfortable being patient, keeping monetary policy on hold and waiting to see if a hypothetical growth surge puts upward pressure on inflation," Paulson said in prepared remarks for a conference in San Francisco.

"But if inflation is above 2% and has been for some time, I would be more cautious. I would be inclined to weight the possibility of overheating more heavily in determining appropriate policy."

Paulson said while long-term inflation expectations are consistent with the 2% objective, "they may also be a little more fragile."

Separately, Richmond Fed President Tom Barkin said the Iran war has complicated the demand outlook.

"Not only do higher oil prices hit consumer sentiment, but they also affect the price of other products like air travel, freight and shipping," Barkin said in remarks prepared for delivery in Tennessee. "Those higher prices can crowd out spending elsewhere."

Earlier this month, the US central bank upgraded its headline and core inflation projections, as measured by personal consumption expenditures.

Higher energy prices and supply disruptions have boosted uncertainty, said Barkin, an alternate FOMC member this year, meaning he can vote on policy decisions if a scheduled voter is not available. "The foggiest part of the outlook is the path forward on inflation," he said.

Several Fed officials, including Fed Vice Chair Philip Jefferson and Governor Lisa Cook, on Thursday shared "a coordinated stance of patience," Stifel said in a report on Friday.

Jefferson spoke about elevated economic uncertainty as the Iran war dragged on. "I continue, however, to see our current policy stance as appropriately positioned to allow us to assess how the economy evolves," he said.

Separately, Cook said that inflation risk is greater than concerns about the labor market.

Fed Governor Michael Barr said on Thursday that the central bank's current policy stance "puts us in a good place to hold steady" while evaluating incoming data and the balance of risks.

"We have had five years now of inflation at elevated levels, and near-term inflation expectations have risen again, so I am particularly concerned that yet another price shock could increase longer-term inflation expectations," he said in prepared remarks for an event in Washington, D. C.

MT Newswires does not provide investment advice. Unauthorized reproduction is strictly prohibited.