(Reuters) – Russia’s invasion of Ukraine adds uncertainty to the U.S. economic outlook and may boost near-term inflation, but household savings and strong economic growth should help limit the damage, New York Federal Reserve Bank President John Williams said on Thursday.
Higher oil prices stemming from the crisis may act like a “tax” on American consumers that limits spending, but savings accumulated during the pandemic may help offset higher costs, Williams said.
“The economy is coming into this with a lot of forward momentum,” Williams said during a virtual event organized by the Council for Economic Education. “It’s definitely not a stagflation issue.”
Fed officials say they plan to start raising interest rates when they meet on March 15-16, a key step in their efforts to battle inflation at 40-year highs.
Williams said he expects inflation to come down later this year, but remain “well above” the central bank’s 2% target. Inflation should moderate as the Fed raises interest rates, fiscal policy fades, and supply shortages are resolved.
But he stressed the Fed’s ability to respond if inflation remains higher than expected at the end of this year and beyond.
“We have the ability to adjust interest rates higher if inflation ends up being much more persistent or staying much higher than we expect or want,” Williams said.
(Reporting by Jonnelle Marte; Editing by Sandra Maler and Leslie Adler)
