Fed's Bowman warns of policy reassessment if Middle East conflict drags into second half

Federal Reserve Governor Michelle Bowman said on May 29, 2026, that the central bank may need to reassess monetary policy and possibly adopt a more restrictive stance if the Middle East conflict prolongs energy supply disruptions into the second half of the year and fuels broader inflation pressures. Bowman, speaking at a conference in Iceland, maintained a baseline view that energy-related inflation spikes from the conflict will likely be temporary and that the economy can withstand them. However, she cautioned that if elevated energy prices persist beyond mid-2026, inflation could spread beyond the energy sector, prompting a rethink of the balance between inflation and growth risks. The Fed is widely expected to hold its benchmark rate steady at 3.50%-3.75% at its June 16-17 meeting. Bowman, often seen as leaning dovish, still supports retaining language about possible future rate cuts in the April policy statement. Yet she acknowledged that a protracted energy shock would force a shift in her outlook, as financial markets increasingly price in a higher probability of rate hikes.