New York Federal Reserve President John Williams has warned that escalating tensions involving Iran could trigger an oil price surge, with potential repercussions across the broader U.S. economy.
In an interview on FOX Business, Williams highlighted that gasoline’s role extends beyond transportation, influencing sectors like clothing manufacturing and packaging. He noted the risk of rising energy costs affecting various consumer expenses, including airfares.
“There’s a pass-through of energy prices into a lot of things that we buy, including airfares… With higher fuel costs, airfares are going to go up,” Williams said.
His comments come as oil markets react to ongoing conflict in Iran and concerns over the Strait of Hormuz, a key transit point for approximately 20% of global oil supply. The national average for a regular gallon of gas has already climbed above $4 since the war began, according to AAA.
Williams acknowledged the strain that rising gas prices place on household budgets, especially amid existing inflationary pressures. He stated, “Higher energy prices affect inflation, it affects also the disposable income that families have, too… So, it hits both inflation, but also it hits demand in the economy.”
While monetary policy can help manage risks, Williams noted its limitations in addressing sudden geopolitical shocks like the conflict with Iran. He emphasized the Fed’s commitment to balancing its goals amid these uncertainties.
Looking ahead, Williams stressed the importance of forward-looking monetary policy, stating, “We have to be forward-looking. We have to be looking where the economy is likely to be in the next year or two, because monetary policy actions, they don’t take the full effect on the economy for at least a year.”
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