Federal Reserve Vice Chair for Supervision Michelle Bowman said on Friday that the Middle East conflict's impact on the economy, while still being measured, could lead to persistent rises in inflation that might require tighter monetary policy.
"It still seems early to assess the size and persistence of the economic effects from the Iran conflict," Bowman said in a speech text for a conference in Iceland.
She expressed optimism that once the war ends, supply disruptions will cease and the impact on inflation will be temporary, with minimal hit to economic activity. But Bowman warned, "should disruptions persist well into the second half of the year, we could start to see broader effects on inflation."
She cautioned that an extended war could change the policy outlook. If the energy shock pushing up inflation broadens into wider price pressures, "the more likely I will consider shifting my approach to thinking about the balance of risks."
The Fed is widely expected to keep its benchmark rate in the 3.50%-3.75% range at its June 16-17 meeting. Due to massive energy price spikes fueling inflation, officials have backed away from rate cut predictions, with some speculating about hikes.
Bowman, who recently supported easing, said she backed keeping language in the April 29 statement that suggested the next move would be a cut.
