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Middle East Conflict Raised Energy Costs but Limited Economic Damage, Fed's Barkin Says

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Federal Reserve Bank of Richmond President Tom Barkin on Thursday said Middle East tensions raised fuel and energy costs but caused less disruption than many expected.

"We've all seen the price jump at the gas pump," Barkin said, adding that higher energy prices are also lifting freight, airfare and packaging costs.

Barkin said higher energy costs are feeding into inflation pressures, with headline personal consumption expenditures inflation rising to 3.5% over the year in March 2026.

"While it's rocked the boat, it's done so less than one might have imagined," Barkin said about the Middle East conflict, noting that consumer spending and broader economic activity have remained resilient despite higher energy costs.

"The US economy remains remarkably resilient," Barkin said, pointing to strong consumer spending, manufacturing activity and artificial intelligence investment despite higher energy prices.

"The US economy has become somewhat immune to oil price shocks because we export more than we import," Barkin said, adding that vehicles have also become more fuel efficient.

Barkin added that larger tax refunds, supportive financial conditions, and strong artificial intelligence investment have also helped offset weaker demand from higher energy prices.

Businesses and consumers still view the latest oil shock as temporary because many expect the US to avoid prolonged high oil prices and an extended Middle East conflict, Barkin said.

"The extent of the damage will depend on how long the conflict lasts," Barkin said, adding that recovery will also depend on how quickly supply chains and manufacturing capacity rebound afterward.

Barkin said recent increases in gasoline prices have pushed up short-term inflation expectations, while businesses are showing greater willingness to pass higher conflict-driven energy costs onto consumers.

Long-term inflation expectations remain relatively stable for now, Barkin added, although inflation has stayed above the Federal Reserve's 2% target for more than five years, raising concerns that repeated supply shocks could eventually weaken those expectations.

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