- The Global Supply Chain Pressure Index released by the New York Federal Reserve slightly fell to 1.77 in May, but overall it remains at a high level, indicating that geopolitical conflicts continue to hinder global shipping and are unlikely to be resolved in the short term.
- The ongoing closure of the Strait of Hormuz has severely disrupted the logistics of oil and key commodities. Federal Reserve officials warn that the inflation transmission path of this supply chain disruption is highly similar to that during the COVID-19 pandemic.
- The market generally expects the Federal Reserve to maintain the benchmark interest rate in the range of 3.50% to 3.75% at the mid-June meeting, but the continued pressure on the supply chain has raised concerns about potential adjustments to policy paths.
Supply Chain Pressure Index Remains High Reflecting Shipping Disruptions
The latest data from the New York Fed shows that the Global Supply Chain Pressure Index slightly declined from an unrevised 1.82 in April to 1.77 in May. Although the data shows a slight decrease, the index remains near the high point since the end of 2022, indicating that global trade networks are still under significant strain. The core issue of this shipping disruption lies in the Middle East situation, particularly the closure of the critical Strait of Hormuz, which has severely hindered the international flow of crude oil and various bulk commodities, significantly impacting global shipping efficiency.
Fed Officials Warn of Pandemic-like Inflation Risks Reemerging
In the face of ongoing supply chain disruptions, several Federal Reserve policymakers have expressed deep concerns about potential upward inflation risks. New York Fed President Williams publicly pointed out that the current supply chain disruptions related to geopolitical conflicts are exhibiting characteristics very similar to those during the COVID-19 pandemic, which was a major driver of the global inflation surge at that time. Although Williams noted that once the conflict ends and trade order returns to normal, price pressures will gradually subside, the current extremely high inflation levels cannot be ignored. Meanwhile, the latest manufacturing survey by the Institute for Supply Management also confirms this situation, showing that factories and businesses face significant challenges in obtaining production inputs, with costs for conflict-related raw materials accelerating upward.
Regional Fed Decision-Makers Divided on Policy Outlook
With the inflation outlook overshadowed by geopolitical uncertainties, discussions within the Federal Reserve about the future path of monetary policy have noticeably intensified. The Fed is expected to maintain the benchmark interest rate in the range of 3.50% to 3.75% at the policy meeting on June 16-17. However, as the inflation rate has been above the Fed's long-term target of 2% for several years, there has been a slight adjustment in the decision-makers' predictions for a prolonged high-interest environment. Cleveland Fed President Mester clearly stated that if inflation pressures do not show substantial relief in the short term, policymakers may need to reconsider rate hikes. Although New York Fed President Williams believes there is currently no urgent need to adjust policy rates, financial markets have begun to show marginal changes in pricing potential risks.
Closure of the Strait of Hormuz Triggers Long-term Supply Shocks
Beyond short-term inflation pressures, industry insiders are more concerned about the lagging effects of supply chain recovery. Boston Fed President Collins previously warned that if shipping through the Strait of Hormuz cannot resume in the short term, the already high global economic pressure will further intensify, especially with more pronounced chain reactions in the Asian market. Mester also pointed out, based on feedback from the business and energy sectors, that even if the strait reopens in the short term, the complexity of logistics reconfiguration means that the actual supply recovery of energy and key bulk commodities may take several months. This structural rigidity on the supply side implies that even if geopolitical risks ease, the full recovery of global supply chains and the decline in inflation will still face a long time window. If core inflation indicators rebound during this period, the pricing benchmarks for global macroeconomic policies may face a comprehensive reassessment.
