Market Update: We break down the business implications, market impact, and expert insights related to Market Update: Senior US Fed official says it’s too soon assess Iran war impact on economy – Full Analysis.
A senior official at the US Federal Reserve said on Tuesday it is too soon to assess the economic impact of the Iran war, which threatens to disrupt the global energy supply chain.
“It’s still early to say … how big this will be and how persistent this will be,” New York Fed president John Williams told reporters after speaking to a conference in Washington.
“Nobody can be sure how long this will last or the broader implications.”
Mr Williams also said the US economy is far less reliant on oil than it used to be, even as the recent conflict conjures memories of the oil crisis that gripped the nation in the 1970s.
“Past experiences show that movements in oil prices of the kind that we’ve seen so far don’t fundamentally shift the economy, but we’ll wait and see,” Mr Williams said.
Nobody can be sure how long this will last or the broader implications
John C. Williams,
New York Fed president
Due its proximity to Wall Street, the Federal Reserve Bank of New York is a significant player in the global financial system and implements the Washington-based Fed board’s monetary policy decisions. As president of the New York Fed, Mr Williams holds a permanent vote on the Federal Reserve Board’s rate-setting committee.
Mr Williams addressed the Governmental Affairs Conference shortly after trading opened in the US. The Dow Jones Industrial Average had fallen by as much as 1,200 points before cutting losses, while the S&P 500 and Nasdaq Composite experienced steep losses.
The CBOE VIX index, Wall Street’s so-called fear gauge, was up more than three points at 24.52.
Mr Williams said he was he was currently in “wait-and-see” mode as he assesses the war’s impact on the underlying strength of the US economy and the inflation rate.
The Iran conflict has broadened to the wider Gulf since the US and Israel attacked Tehran on Saturday. Iran has fired hundreds of missiles and drones at the UAE and Kuwait, and a smaller number of strikes on neighbouring Gulf countries.
Anxiety abounds over the Strait of Hormuz, a chokepoint through which one-fifth of the world’s global oil supply passes each day. Recent attacks on energy sites throughout the Gulf suggest that energy supply chain concerns are increasing.
Several Gulf energy sites have been hit by Iran in recent days, including fuel storage tanks at the UAE’s Port of Fujarah. Ras Tanura, Saudi Arabia’s largest domestic refinery, shut down on Monday after it was bombed, although Iran denied the attacks.
Qatar, which accounts for 20 per cent of the world’s liquefied natural gas supply, paused operations on Monday after its facilities were struck. Oman’s Port of Duqm was attacked on Sunday.
Oil prices have steadily risen since trading resumed this week, with Brent crude touching $84 a barrel on Tuesday while West Texas Intermediate oil, the US metric for crude, rose past $76 a barrel. Some estimates suggest oil could surge to $120 a barrel in the event of a prolonged closure of the Strait of Hormuz, which would rival the level oil prices rose to during after Russia’s invasion of Ukraine in 2022.
A Wells Fargo analysis estimates that 10 per cent and 30 per cent sustained oil price increases “do not come close” to dragging the US economy into a recession or change the nation’s core inflation outlook.
“Central banks typically look through oil-driven inflation shocks, and we expect this time to be similar,” Wells Fargo chief economist Tom Porcelli wrote in a note.
Traders still widely anticipate the Federal Reserve will hold its key benchmark rate to the target range of 3.50 to 3.75 per cent when it meets later this month, according to CME Group data.
The US central bank, which paused its rate cuts in January, is not expecting to resume reductions until the third quarter this year.