New York Fed President John Williams says the US‑Israel war against Iran will push headline US inflation higher this year by driving up energy prices, even as he insists monetary policy is “in the right place” to absorb the shock.
Summary
New York Federal Reserve President John Williams said the war in the Middle East is “driving up inflation” and that the impact of soaring energy prices will be “significant in the short term” but should ultimately prove temporary.
In an interview with Bloomberg, Williams said the conflict‑driven energy shock “will directly go into headline inflation because energy prices are an important component of that,” adding that he expects headline inflation to be “elevated” in the middle of the year and to end 2026 at “around 2.75%.”
Williams warned that as US and Israeli attacks on Iran disrupt oil flows, “it is possible for inflation to go over 3%” on an annual basis in the near term, noting that market pricing now reflects that risk.
Short‑term spike, long‑term path unclear
Williams reiterated that he still sees core inflation, which excludes energy and food, running at roughly 2.5% this year, implying that most of the additional price pressure will come from oil and refined fuels rather than broader demand.
His comments echo a separate speech reported by Investing.com, where he said “developments in the Middle East are driving significant increases in energy prices, which are already lifting overall inflation,” and projected inflation “well above 3% over the next few months” as the shock filters through the economy.
The World Bank now projects that energy prices could surge by 24% in 2026 to their highest level since Russia’s 2022 invasion of Ukraine, even in a baseline scenario where the current war’s most acute disruptions ease by May, underscoring the magnitude of the supply shock the Fed is forced to absorb.
Crypto markets and war‑driven inflation
The conflict‑driven repricing of oil has already spilled into digital assets. crypto.news recently reported that Brent crude has traded above $100 per barrel as Hormuz disruptions choke roughly 20% of global supply, fueling inflation fears that have weighed on Bitcoin and broader crypto valuations.
In a separate analysis of why the crypto market is dropping, crypto.news linked escalating Middle East tensions and surging oil prices directly to expectations of tighter Federal Reserve policy, after Bitcoin fell below $70,000 and major altcoins including Bitcoin, Ethereum, BNB, XRP, Solana, and Dogecoin all posted 2%–4% daily losses.
Another crypto.news macro preview noted that economists now expect monthly US headline CPI prints as high as 0.9% year‑on‑month, driven “almost entirely” by a double‑digit jump in energy costs tied to the Iran war, with the Federal Reserve keeping rates at 3.50%–3.75% and signaling that oil‑driven inflation could keep PCE stuck near 3%.
Fed’s message hardens as war drags on
Williams’s insistence that policy is “in the right place” sits uneasily alongside increasingly hawkish rhetoric from his colleagues as the war drags on and energy costs stay elevated.
Federal Reserve Governor Christopher Waller recently told markets that April US CPI had already climbed to 3.8% year‑on‑year with energy prices up 17.9% as oil moved back above $100 per barrel, arguing that fresh rate hikes are “back on the table” if inflation does not abate.
Chicago Fed President Austan Goolsbee has also warned, in comments reported by crypto.news, that rate cuts may not arrive until 2027 if war‑driven energy prices keep inflation stuck above the Fed’s 2% target.
