Fed’s Bowman says too soon to judge inflation impact of Iran war

Published Fri, May 29, 2026 · 10:16 PM

FEDERAL Reserve Vice Chair for Supervision Michelle Bowman said it’s too soon to judge the inflationary impact from the Iran war and that policymakers need to look through temporary price shocks.

In a speech on Friday (May 29) outlining her approach to monetary policy, Bowman said she supported officials’ decision last month to maintain language in their post-meeting statement that suggested additional rate cuts are a possibility.

That separates her from a growing number of policymakers who want the central bank to signal their next move is just as likely to be a rate hike as a reduction.

“As I think about the path forward for monetary policy, I would like to have more clarity on the economic impacts from the conflict in the Middle East and the durability of those effects,” Bowman said in remarks prepared for a central banking conference in Iceland.

“It is appropriate to look through temporarily elevated inflation readings largely due to higher energy prices, provided that we remain credible in our commitment to achieve our inflation goal,” she said. 

Bowman added that she expects “one-off” effects of tariffs, implemented by President Donald Trump, to wane. 

The US war in Iran has pushed up energy prices and raised the prospect of broadening price pressures.

Data on Thursday showed the Fed’s preferred gauge of inflation, the personal consumption expenditures price index, rose 3.8 per cent in the 12 months through April. That’s the highest level since 2023, and almost two full percentage points above the central bank’s 2 per cent target. 

Bowman said economic research suggests policymakers need to be careful in how they respond to energy supply shocks.

“Reacting to temporarily elevated energy price inflation would add unwarranted policy restraint, weighing unnecessarily on economic activity and labour market conditions,” she said.

“For now, our moderately restrictive policy stance is intended to help maintain stable labour market conditions while allowing inflation to resume its downward trend toward 2 per cent once the effects of tariffs and oil prices dissipate.”

Still, she cautioned that the longer the Iran war persists, the greater the potential for a bigger inflation hit.

“In particular, the more persistent higher oil prices are — or if we start to see broader effects of higher energy prices on PCE inflation — the more likely I will consider shifting my approach to thinking about the balance of risks,” Bowman said. BLOOMBERG