The President of the New York Federal Reserve reiterated his stance on holding interest rates steady but warned that a prolonged war could simultaneously increase inflation and restrain economic growth.

John Williams, President of the New York Fed and considered the Federal Reserve's third-in-command, stated on Thursday that the current monetary policy stance is "well-positioned" to handle the risks of persistent supply shocks potentially triggered by the Middle East conflict. He cautioned that the conflict could create a dual pressure by driving up inflation while suppressing economic activity.

In prepared remarks for an event in New York City, Williams noted that the impact of rising energy prices has spread to goods and services beyond energy, including increases in airfare, groceries, fertilizer, and other consumer goods prices. However, he indicated that underlying inflation is still moving in the "right direction."

Multiple Fed officials have signaled a preference to keep interest rates unchanged at the policy meeting scheduled for April 28-29.

**Conflict Impact Pathways: Supply-Side Pressures Could Hit US Economy from Two Sides**

Williams outlined two scenarios for an escalation of the Middle East situation. If energy supply disruptions ease in the short term, some of the shock's effects this year could be reversed. However, if the crisis persists longer, the consequences would be more severe.

"This conflict could trigger large-scale supply shocks with significant effects – raising inflation through soaring intermediate costs and commodity prices, while simultaneously dragging on economic activity," Williams stated.

He further pointed out that the pass-through effects of rising energy prices are already visible across multiple sectors, reflected not only in higher fuel costs but also in increased prices for airfare, food groceries, fertilizer, and other consumer goods due to passed-on costs. Despite this, he maintained the judgment that the "current monetary policy stance is sufficient to balance the risks to the dual mandate of maximum employment and price stability."

**Economic Forecast: Resilient Growth, Inflation Unlikely to Return to 2% Target Before 2027**

Regarding the macroeconomic outlook, Williams maintained a relatively moderate baseline forecast. He expects US economic growth this year to be between 2% and 2.5%, with the unemployment rate remaining in the range of 4.25% to 4.5%.

On inflation, he projects that overall inflation will be between 2.75% and 3% by the end of this year, subsequently declining to the Fed's 2% policy target by 2027. This forecast implies that inflation will remain above the target level for a considerable period, further supporting the policy stance of maintaining stable interest rates in the near term.

**Labor Market: Divergence Between Hard and Soft Data**

Williams specifically highlighted "contradictory signals" emerging in the labor market. Hard data suggests the employment outlook is broadly stable, but soft data – such as the New York Fed's Survey of Consumer Expectations – indicates signs of a continued gradual softening in the labor market.

This divergence creates greater uncertainty for the Fed in assessing the economy's health. Amid ongoing uncertainty regarding the Middle East situation and supply-side pressures, Williams's remarks have further solidified market expectations that the Fed will keep interest rates unchanged this month.