St Louis Fed's Musalem says US economy better able to handle oil price spike than 2022

WASHINGTON, April 1 (Reuters) - Federal Reserve Bank of St. Louis President Alberto Musalem said on Wednesday that policymakers need to stay vigilant on oil and commodity supply shocks from the Iran war even though the U.S. economy is better positioned to handle them than during the 2022 Ukraine war oil price shock from an inflation standpoint.

Musalem told reporters after speaking at the American Enterprise Institute that the U.S. economy was already overheated in 2022 as it emerged from the COVID-19 pandemic, with a very tight labor market and accelerating demand when Russia invaded Ukraine. Oil prices were above $100 a barrel for six months in 2022, coinciding with the highest monthly inflation in decades.

"Right now, the economy is not overheated. Growth is right around potential in level terms or growth terms. So it's a little different than that time, but we have to be vigilant," Musalem said, adding that the Iran war was the first major supply shock in five years.

The oil price spike has hit trucking and farming in the St. Louis Fed district particularly hard, and supplies of fertilizer, helium, aluminum and other commodities out of the Persian Gulf have also been curtailed, he said.