Federal Reserve Israel-Hamas Conflict

Response of Federal Reserve to Israel-Hamas Conflict Raises Questions

Federal Reserve officials have been notably reticent in addressing the ongoing Israel-Hamas conflict. This stands in stark contrast to their proactive stance during the war in Ukraine last year.


When Russia launched an attack on Ukraine on February 24, 2022, Fed Governor Chris Waller was quick to comment on the situation, expressing concern for those in harm’s way. He emphasized that it was premature to assess the conflict’s global and economic implications.


However, as the Israel-Hamas conflict unfolded, public appearances of the Federal Reserve Governor remained conspicuously silent on the tragedies that were transpiring.


Several other high-ranking Fed officials, including Vice Chairs Michael Barr and Philip Jefferson, Fed Governor Michelle Bowman, and Dallas Fed President Lorie Logan, also made public remarks last week, but none made any mention of the war in Israel.


Emma Jones, a spokesperson for the Fed, declined to offer insight into why there was a notable discrepancy in the Fed’s response to the two conflicts.


James Dorn, a Fed policy expert and senior fellow at the Cato Institute, expressed his concerns, stating that given the Fed’s attention to issues like climate change and diversity, it should also address the gravity of the situation in the Middle East.


While some Federal Reserve officials did address the Israel-Hamas conflict when questioned, the responses varied.


Fed Chair Jerome Powell, in his first public remarks since the war began, acknowledged the heightened geopolitical tensions and the profound risks they pose to global economic activity. He expressed his personal horror at the attack on Israel and the potential for further loss of innocent lives.


Powell noted that government spending could substantially rise due to the concurrent wars in Ukraine and Israel, but emphasized that it wouldn’t directly influence the central bank’s monetary policy decisions.


Atlanta Fed President Raphael Bostic was the first to openly discuss the war, conveying his empathy for those adversely affected by the situation. He highlighted the need for a reevaluation of markets and partnerships in light of these unforeseen events.


Minneapolis Fed President Neel Kashkari addressed the conflict’s economic impact, particularly on commodity markets and oil prices, during a discussion at Minot State University.


Boston Fed President Susan Collins emphasized the resilience of the U.S. economy to global shocks, acknowledging that the impacts of current events extend beyond the economic sphere. Nevertheless, she asserted that the conflict would be factored into the Fed’s policy decision models.


Philadelphia Fed President Patrick Harker discussed the potential for a soft landing scenario for the U.S. economy, despite acknowledging the string of unexpected shocks, including the wars in Ukraine and Israel.


Harker cautioned that this may be one of the most perilous times the world has seen in decades, with far-reaching implications for energy and food markets, global trade, and geopolitical relationships.


One significant economic threat lies in the possibility of more countries, including the U.S., imposing stricter embargoes on Iranian oil. However, Iran’s influence on the global oil market remains limited, compared to Russia, a major oil producer.


Dorn emphasized that while the Fed may wish to remain impartial, officials can still address the issue without taking sides.


Moreover, the potential for a multinational war to spill over into the critical Strait of Hormuz raises concerns, as it serves as a conduit for a substantial portion of global seaborne oil exports.


Economists caution that any surge in oil prices resulting from the Israel- Hamas conflict could lead to demand reduction, potentially prompting the Federal Reserve to reconsider further rate hikes, coupled with the cumulative impact of the previous rate hikes, adds another layer of complexity to the policy decisions of the Federal Reeserve in these uncertain times.

Source: CNN

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