Richmond Fed President: "Middle East conflict could spark inflation… the Fed can’t ignore long-term shocks"

Thomas Barkin, president of the Federal Reserve Bank of Richmond, recently said the latest developments involving Iran could trigger inflation.

In an interview with Bloomberg TV on the 5th (local time), Barkin said, "If gas prices rise (because of the Middle East conflict), it naturally leads to inflation," adding, "Textbook monetary policy ignores short-term shocks, but it can’t ignore long-term shocks." On recent inflation readings, he said, "It means we clearly need to be cautious about concluding that we’ve finished the fight against inflation."

The U.S. Federal Reserve (Fed) will hold a Federal Open Market Committee (FOMC) meeting on the 17th–18th of this month to decide the benchmark interest rate. In markets, a growing string of indicators showing the U.S. labor market stabilizing and manufacturing and services gaining momentum is reinforcing expectations that the Fed will keep rates unchanged this month. Barkin said, "The Fed’s response (to the Middle East conflict) depends on how long the war’s impact on the U.S. economy lasts."