Chicago Federal Reserve Bank president Austan Goolsbee said Tuesday he’s concerned that the oil shock from the Iran war could potentially drive up prices in a “stagflationary way.”
Goolsbee stressed that the oil price shock comes as tariffs were working their way through the economy and had already led to higher inflation that was expected to fade later this year.
“My concern at this immediate time is that we’ve got to get our heads around an oil shock, which is going to drive up prices in a stagflationary way, potentially before the other one has gone away,” Goolsbee said at the Detroit Economic Club.
Goolsbee noted that the situation is eerily reminiscent of 2022, when inflation due to supply chain disruptions from COVID was still rippling through, and then the war in Ukraine broke out, driving up oil prices on top of that.
“So, how persistent this is going to be, I think, is going to have a major impact on how you view the economy,” he said. “I’m cautious-slash-nervous about it in the moment.”
Read more: How oil price shocks ripple through your wallet, from gas to groceries
Elsewhere on Tuesday, New York Fed president John Williams said his outlook for inflation was largely unchanged despite his expectation that higher energy costs from the war in Iran will push up overall inflation.
“The story hasn’t changed very much” around underlying inflation, Williams told Bloomberg TV.
Williams said he expects “core” inflation, which excludes volatile food and energy prices, to rise by just one- or two-tenths of a percentage point on account of the oil shock.
He does expect higher headline inflation and thus plans to hold interest rates steady.
“Monetary policy today is really well-positioned to wait for the economic consequences of the conflict in the Middle East,” Williams said. “Monetary policy is exactly where it needs to be, and then we can respond if the situation changes.”
Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. At Yahoo Finance she covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram.
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