“Developments in the Middle East are driving significant increases in energy prices, which are already lifting overall inflation,” Williams said in remarks to the Federal Home Loan Bank of New York 2026 Member Symposium. Williams said there are mounting signs of supply chain disruptions and higher fuel costs are passing through in the form of higher airfares, groceries, fertilizer, and other consumer products. If the disruptions end swiftly, energy prices should wane, Williams said. But if the war continues for longer, the conflict “could also result in a large supply shock with pronounced effects that simultaneously raises inflation—through a surge in intermediate costs and commodity prices—and dampens economic activity.”

Williams said inflation will likely rise to between 2.75% and 3% this year before retreating to the 2% target in 2027. He projects unemployment will stay between 4.25% and 4.5% this year, with growth coming in between 2% and 2.5%. The New York Fed president reiterated his commitment to getting inflation back to target. He said Fed interest rate policy is well positioned to balance the risks to maximum employment and price stability goals amid an unusual set of circumstances.

 The Fed kept its interest rate target steady at its mid-March policy meeting at between 3.5% and 3.75%. It next meets on April 28-29 and is not expected to change its interest rate setting.