Opinion
The US Federal Reserve Board is now officially operating in the dark, leaving US interest rates unchanged while it waits to see how the war in the Middle East unfolds.
As the impact of the war on energy supply and prices has intensified – most recently with Israel’s strike on Iran’s major source of gas, the vast South Pars offshore gas field, and Iran’s retaliatory bombing of Qatar’s giant Ras Laffan LNG complex, one of the world’s most important energy hubs – the Fed has effectively acknowledged it hasn’t a clue what that might mean for the US economy.
Jerome Powell and Donald Trump have a tempestuous relationship. Aresna Villaneuva “It is too soon to know the scope and duration of the potential effects on the economy,” the Fed’s chairman, Jerome Powell, said.
“The thing I really want to emphasise is that nobody knows.”
He joked that several members of the Federal Open Market Committee (FOMC), which sets the US policy rates and publishes quarterly projections of economic outcomes, had said that, if ever there was a meeting to skip the release of those projections, “this would be a good one”.
With US petrol and diesel prices soaring since the onset of the hostilities, the conflict will have an impact on the inflation rate, which has remained stubbornly above the Fed’s target of 2 per cent for the past five years.
Whether that impact is temporary – “transitory” – or not, depends on how entrenched inflationary expectations become. The Fed thought the impact of COVID on inflation would be transitory, but it took two
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