The "three hands" of the Federal Reserve: energy shocks may push up inflation, but there is no need to adjust interest rates.

John Williams, President of the New York Federal Reserve, said that although he expects the rise in energy costs triggered by the Iran war to push up overall inflation, the prospects for underlying price pressures in the U.S. remain essentially unchanged. In an interview on Tuesday, he pointed out that the "fundamentals around underlying inflation have not significantly changed," and added that he expects the core inflation rate excluding food and energy to increase by only 0.1 to 0.2 percentage points. Williams said he has slightly lowered his outlook for U.S. economic growth in 2026 to 2% to 2.5%. Earlier, he had expected a growth rate of 2.5% to 2.75%. He also expects the overall inflation rate to rise. He stressed that there is currently no need to consider adjusting the Fed's benchmark interest rate, saying that the "current monetary policy stance is very appropriate" and is sufficient to observe the economic consequences of the Middle East conflict. "Monetary policy is in the right place, and if the situation changes, we can respond at any time." The Iran war is testing the dual mandate of the Federal Reserve: soaring energy prices could both curb economic growth and exacerbate inflationary pressures. There are no signs of easing restrictions on global oil supply due to the conflict, and the Trump administration has threatened to strike Iranian civilian infrastructure starting from Tuesday. Several Fed officials, including Fed Chairman Jerome Powell, have stated that current interest rate levels are favorable and can temporarily balance rising risks. Williams said that after the unexpectedly strong employment report in March lowered the unemployment rate to 4.3%, he is more confident in the U.S. labor market. He said: "What we are seeing now is a more stable labor market, definitely not a weakening labor market."