When war broke out in Ukraine last year, Federal Reserve officials were quick to speak about it.
“Let me comment on what I think is on everyone’s minds today: Russia’s attack on Ukraine,” Fed Governor Chris Waller said on February 24, 2022, hours after Russia invaded Ukraine.
“Obviously, there are people in harm’s way and we shouldn’t lose sight of them. It is far too early to judge how this conflict will affect the world, or the world economy, and what the implications will be for the US economy,” Waller said.
Now, there’s another war going on, between Israel and Hamas.
Yet in Waller’s first public appearance after Hamas invaded Israel last weekend, he did not acknowledge the tragedies that have unfolded.
In his second appearance since the war broke out, he said he doesn’t think there is a strong chance it will hurt the US economy unless there’s a major spillover effect that chills business and consumer sentiment.
Fed Vice Chairs Michael Barr and Philip Jefferson, Fed Governor Michelle Bowman and Dallas Fed President Lorie Logan all made public remarks last week. None made mention of the war in Israel.
Emma Jones, a spokesperson for the Fed, declined to comment on why many Fed officials, who in the past moved swiftly to acknowledge the war in Ukraine, weren’t addressing the war in Israel.
That shouldn’t be the case, James Dorn, a Fed policy expert and a senior fellow at the libertarian-leaning Cato Institute, told CNN. “The Fed addresses climate change and diversity, you’d think they ought to address the seriousness of what’s going on in the Middle East,” he said.
There are some Fed officials who are starting to talk about it, though — albeit only when asked questions.
“Geopolitical tensions are highly elevated and pose important risks to global economic activity,” Fed Chair Jerome Powell said Thursday in his first public remarks since the war broke out. “Speaking for myself, I found the attack on Israel horrifying, as is the prospect for more loss of innocent lives.”
At an event hosted by the Economic Club of New York, Powell acknowledged that government spending could substantially rise with the simultaneous wars in Ukraine and Israel. But “it’s not really something” that will influence the central bank’s monetary policy decisions, he said.
Atlanta Fed President Raphael Bostic was the first to speak about the war, at the American Bankers Association’s annual conference last Tuesday.
“My heart goes out to everyone who has been adversely affected by that situation,” he said, adding that, “it’s really troublesome.”
With regard to how the conflict will impact both the US and the global economy, Bostic said “this is just another new, unexpected thing that is going to cause everyone to have to rethink where our markets are going to be, where our partners are going to be.”
During a moderated discussion at Minot State University in North Dakota last week, Minneapolis Fed President Neel Kashkari didn’t address the conflict until the very end.
“The first mechanism by which geopolitical events — whether it’s Russia invading Ukraine, or the Hamas attack on Israel — affect the economy… is through commodity markets, through oil prices, first and foremost, but through other commodity markets as well,” he said.
“We saw huge price moves when Russia invaded Ukraine, so far much more muted moves around what’s happening in Israel,” he added.
Kashkari labeled the conflict a “human tragedy.”
Boston Fed President Susan Collins said that, “given the size of the US economy,” it is generally much more resilient to global shocks.
“Many of the impacts of the horrific events and what we’re seeing at the moment are beyond the economic ones,” Collins said during an event hosted at Wellesley College last Wednesday. Nevertheless, the conflict is something the Fed will take into account in its models that help officials make policy decisions, she said.
Philadelphia Fed President Patrick Harker said the US economy can still achieve a soft landing, a scenario where inflation retreats without pushing the economy into a recession.
“Now there’s a huge caveat that we’ve been hit time after time with shocks — proverbial ‘black swans’ that come out of left field that we don’t expect,” he said on Friday at an event hosted by the Delaware State Chamber of Commerce.
The war in Ukraine was one of those, he noted, and now it’s “this horrible situation we’re seeing in Israel and the Middle East more broadly.”
It’s unclear if the Israel-Hamas war will “more broadly” impact the global economy, Harker said.
While it may be true that a war between Israel and Hamas alone may not amount to much for the US economy, there’s a significant and growing risk it will escalate to a multinational war potentially involving Iran, Lebanon and Syria given the recent tensions among those nations.
JPMorgan Chase CEO Jamie Dimon isn’t treating that lightly.
“Now may be the most dangerous time the world has seen in decades,” he said on the bank’s third-quarter earnings call last week. The war, he said, “may have far-reaching impacts on energy and food markets, global trade and geopolitical relationships.”
Dorn of the Cato Institute said Fed officials “have to think about the economic implications of this.”
One threat to the economy is if more countries — including the United States — impose stricter embargoes on Iranian oil. US sanctions on Iran are supposed to prevent Iranian oil from being sold in the United States, but traders have been able to find loopholes to get around it in the past.
Even so, Iran’s influence on the global oil market is limited. According to Kpler data, the country exported only about 1.4 million barrels a day of crude in the third quarter, accounting for a maximum of 1.4% of global supply.
By comparison, Russia was the world’s second-largest oil producer in 2021, according to Rystad Energy data. That’s why there was a much more immediate spike in gas prices across the globe after a slew of countries banned Russian oil imports after the invasion of Ukraine.
That’s probably why more Fed officials were quicker to acknowledge the war in Ukraine, Dorn said. But there’s more to it than that, he said.
“This is a much more emotional thing for a lot of people,” he said, referring to the war taking place in Israel and Gaza, whereas Ukraine had a lot of bipartisan support initially. “I don’t think the Fed wants to look like they’re taking sides,” Dorn added — but said Fed officials could easily talk about it without looking partial.
There’s also a more substantial risk that a multinational war spills over into the Strait of Hormuz, a narrow waterway off Iran’s southern border through which 37% of global seaborne oil exports travel each day.
Any surge in oil prices that results from the war “would likely lead to more demand destruction than in 2022 when the economy was fiscally stimulated,” said Gregory Daco, chief economist at EY-Parthenon.
Higher gas prices, which are likely to cause consumers to cut back on spending in other areas, combined with the impact of all of the Fed’s rate hikes since March 2022, could cause the central bank to rethink further rate hikes entirely, Daco said.