We're Looking at Inflation Above 3% this Year, Says Calvin Tse of BNP Paribas

Calvin Tse, Head of US Strategy & Economics at BNP Paribas, breaks down his Fed policy outlook and inflation expectations.

Federal Reserve Bank of New York President John Williams said his outlook for underlying price pressures in the US was largely unchanged despite his expectation that higher energy costs stemming from the war in Iran will boost overall inflation.

“The story hasn’t changed very much” around underlying inflation, Williams said Tuesday in an interview with Bloomberg TV. He added that he anticipated core inflation, which excludes food and energy components, would rise by just one or two tenths of a percentage point.

Williams said he had slightly downgraded his forecast for economic growth in the US in 2026 to a range of 2% to 2.5%. Just before the war he was expecting 2.5% to 2.75%. He also sees higher headline inflation.

Williams said there was no need to consider any change to the Fed’s benchmark interest rate.

“Monetary policy today is really well positioned” to wait for the economic consequences of the conflict in the Middle East, he said. “Monetary policy is exactly where it needs to be, and then we can respond if the situation changes.”

The war in Iran is testing the Fed’s dual mandate, delivering a spike in energy prices that risks slowing growth while fueling inflation. The conflict, and its restrictions on the global supply of oil, showed no sign of abating as the Trump administration threatened to target civilian infrastructure in Iran beginning Tuesday.

Several Fed officials, including Chair Jerome Powell, have said interest rates are well positioned to balance the mounting risks for the time being.

Williams expressed a bit more confidence in the US labor market following a surprisingly strong March jobs report that lowered the unemployment rate to 4.3%. Williams said there was no need to consider any change to the Fed’s benchmark interest rate.

“Monetary policy today is really well positioned” to wait for the economic consequences of the conflict in the Middle East, he said. “Monetary policy is exactly where it needs to be, and then we can respond if the situation changes.”

The war in Iran is testing the Fed’s dual mandate, delivering a spike in energy prices that risks slowing growth while fueling inflation. The conflict, and its restrictions on the global supply of oil, showed no sign of abating as the Trump administration threatened to target civilian infrastructure in Iran beginning Tuesday.

Several Fed officials, including Chair Jerome Powell, have said interest rates are well positioned to balance the mounting risks for the time being.

Williams expressed a bit more confidence in the US labor market following a surprisingly strong March jobs report that lowered the unemployment rate to 4.3%.

“We’ve seen the labor market much more stable now, definitely not a labor market that is weakening,” Williams said.

FOMC Leadership

Asked who would lead the Fed’s interest-rate setting panel, the Federal Open Market Committee, in the months ahead, Williams said Chair Jerome Powell would remain head of that committee until a new chair of the Fed’s Board of Governors was confirmed by the Senate.

That could mean Powell retains significant influence over monetary policy for many more months.

Trump has nominated former Fed Governor Kevin Warsh to replace Powell, whose term as chair expires May 15. But a key Republican senator has vowed to block Warsh’s confirmation unless a Justice Department investigation into the Fed is dropped. DOJ prosecutors have shown no intention of backing away from the probe.

Read More: US Judge Denies Pirro Motion to Revive Quashed Fed Subpoenas

Powell, whose underlying role as a governor doesn’t end until 2028, has also pledged to stay on at the Fed until the investigation is resolved “with transparency and finality.” And if Warsh isn’t confirmed by May 15, he’s said he expects to serve in the interim as chair pro tempore.

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