FOMC Faces War-Driven Increased Risks to Price Stability, Employment Targets, New York Fed's Williams Says

03:51 PM EDT, 05/04/2026 (MT Newswires) -- Risks to the Federal Reserve's price stability and maximum employment objectives have increased amid the Middle East conflict, which could keep inflation elevated for some time, New York Fed President John Williams said Monday.

The US-Israel war with Iran has brought in "significant and unpredictable risks" to the global economy, Williams said in prepared remarks for a symposium in New York City. The conflict could trigger a "larger and broader-based supply shock that has more severe adverse consequences" for inflation and economic activity.

The war, which started at the end of February, has sent energy prices soaring amid disruptions to shipments through the crucial Strait of Hormuz. Crude oil prices were up Monday as Iran fired missiles and drones at the United Arab Emirates, reigniting concerns about an already-fragile ceasefire that had recently paused hostilities in the region.

"Right now, the future is difficult to see, and the risks to both sides of our mandate have increased," Williams said. He expects US inflation at about 3% this year, before it drops next year to the central bank's 2% target "as the effects of tariffs and energy prices move into the rearview mirror."

Last week, official data showed that US inflation accelerated in March to the fastest pace since mid-2022 amid the Middle East conflict.

Despite the recent price shocks, inflation expectations have continued to be "well anchored," Williams said Monday. "This is critically important, because well-anchored expectations have proven to be invaluable to ensuring price stability during unexpected shocks and extreme uncertainty."

In the labor market, much of the hard data indicate stabilization, while some of the soft data point to "continued gradual slowing," Williams said. "Although this dissonance in the hard and soft data may reflect the effects of a low-hire, low-fire labor market, it bears continued close monitoring for signs that conditions are shifting."

The US economy has remained "remarkably resilient" so far this year, Williams said, adding that he expects the unemployment rate to stay in its recent range of 4.25% to 4.50%.

On Wednesday, the Federal Open Market Committee kept its benchmark lending rate steady for a third straight meeting, saying the Middle East conflict is fueling uncertainty around the US economic outlook.

On Friday, three FOMC officials who wanted language changes in the April monetary policy statement said that risks to inflation and employment didn't warrant an inclusion of the so-called easing bias. Those officials were regional Fed presidents Beth Hammack of Cleveland, Neel Kashkari of Minneapolis and Lorie Logan of Dallas.

"The 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 Monday.

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