Key insights
- Fed's Bowman indicated that the Iran conflict could lead to persistent inflation, potentially requiring tighter monetary policy. While short-term disruptions might be temporary, prolonged conflict could broaden price pressures, shifting the Fed's risk assessment and policy approach. This suggests a potential headwind for equities if inflation proves sticky and necessitates prolonged restrictive policy.
Investing.com -- Federal Reserve Vice Chair for Supervision Michelle Bowman said on Friday the Middle East war’s impact on the economy could lead to persistent rises in inflation that might require tighter monetary policy.
Bowman said it remains early to assess the size and persistence of the economic effects from the Iran conflict, according to the text of a speech delivered at a conference in Iceland.
She said she was optimistic that once the war ends, supply disruptions will end and there will be a temporary impact on inflation and a minimal hit to overall economic activity. But Bowman added that if disruptions persist into the second half of the year, broader effects on inflation could emerge.
Bowman warned that an extended war could change the outlook on monetary policy. If the energy shock pushing up inflation were to broaden into price pressures more widely, she would consider shifting her approach to thinking about the balance of risks, she said.
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