Fed's Paulson Warns Iran War Creates New Risks to Both Inflation and Growth

Key Points

• Fed's Paulson says Iran war creates new risks to both inflation and growth
• Inflation remains above the Fed's 2% target despite significant progress to lower it
• Paulson would feel more comfortable being patient with monetary policy if inflation reached 2%
• The Iran war continues to drive higher oil and gasoline prices

Full Details

Philadelphia Federal Reserve President Anna Paulson warned on March 27 that the conflict in the Middle East has created new risks to both inflation and growth for the U.S. economy. In a speech delivered at an event held by the San Francisco Fed, Paulson noted that inflation has exceeded the U.S. central bank's 2% target for an extended period despite "significant progress" to lower price pressures. She stated that if inflation were at the 2% target, she would feel more comfortable being patient and keeping monetary policy on hold while waiting to see if a hypothetical growth surge puts upward pressure on inflation. The comments come as the Iran war continues to drive oil prices higher, with gasoline prices now above $4.50 per gallon in many parts of the United States. Paulson stopped short of specifying what the conflict might mean for near-term changes in monetary policy.