In the wake of the ongoing Israel-Hamas conflict, Federal Reserve officials have taken a measured stance compared to their swift response during the Ukraine war last year.
On February 24, 2022, shortly after Russia’s invasion of Ukraine, Fed Governor Chris Waller promptly commented on the situation, expressing concern for those in harm’s way. He emphasized that it was premature to gauge the global and U.S. economic implications.
However, in the aftermath of Hamas’ incursion into Israel, Waller’s initial public appearance did not touch upon the unfolding tragedies. During a subsequent appearance, he noted that a significant negative impact on the U.S. economy would only materialize if there were substantial spillover effects dampening business and consumer sentiment.
Last week, Fed Vice Chairs Michael Barr and Philip Jefferson, Fed Governor Michelle Bowman, and Dallas Fed President Lorie Logan made public remarks, all without mentioning the Israel-Hamas conflict.
Emma Jones, a spokesperson for the Fed, declined to offer a statement regarding why many officials refrained from addressing the situation in Israel. James Dorn, a Fed policy expert and senior fellow at the Cato Institute, remarked that given the Fed’s attention to issues like climate change and diversity, addressing the gravity of the Middle East situation should be a logical step.
Fed Chair Jerome Powell, in his first public remarks since the conflict began, acknowledged the heightened geopolitical tensions and the distressing attack on Israel. Powell highlighted the potential for increased government spending due to simultaneous conflicts in Ukraine and Israel but noted it would not directly impact monetary policy decisions.
Atlanta Fed President Raphael Bostic was the first to express his concern at the American Bankers Association’s annual conference, empathizing with those adversely affected. Bostic underscored the need to reevaluate market and partnership dynamics in light of the new geopolitical challenges.
Minneapolis Fed President Neel Kashkari, during a discussion at Minot State University, linked geopolitical events like the Hamas attack on Israel to commodity market fluctuations, particularly in oil prices.
Boston Fed President Susan Collins emphasized the resilience of the U.S. economy to global shocks, while acknowledging that impacts extended beyond economic considerations. She affirmed that the conflict would be factored into the Fed’s policy decision-making models.
Philadelphia Fed President Patrick Harker discussed the potential for a soft landing for the U.S. economy, though he cautioned against unexpected shocks, citing both the Ukraine war and the situation in Israel as examples.
Harker acknowledged the uncertainty regarding the broader impact of the Israel-Hamas conflict on the global economy. He noted a growing risk of escalation to a multinational conflict, involving nations like Iran, Lebanon, and Syria, given recent tensions.
Gregory Daco, chief economist at EY-Parthenon, warned that a surge in oil prices resulting from the conflict could lead to demand reduction greater than in 2022. This, coupled with the impact of previous rate hikes, could prompt a reassessment of further rate hikes by the central bank.
Experts suggested that the cautious approach of the Federal Reserve towards the Israel-Hamas conflict may be influenced by both the emotional nature of the conflict and a desire to maintain neutrality. Nonetheless, they also noted that addressing the issue without partisanship is entirely feasible. Additionally, concerns were raised regarding the potential impact on global oil markets and the Strait of Hormuz, should the conflict escalate further.
Source: CNN
