The Federal Reserve Board published a research note assessing how shortages tied to the Middle East conflict could affect the global economy. Using a news-based shortage index that tracks media coverage of supply disruptions, the note finds that the increase seen since the conflict began has historically been associated with weaker global activity and higher inflation, with world GDP 0.8 percent below baseline and world headline prices 1 percent higher after about three years. The shortage index is built from textual analysis of 25 million articles in six major U.S. newspapers and covers food, industrial products, labor and energy shortages from 1900 through May 2026. The index stood at 175 in May 2026, or 75 percent above its historical average, though still well below pandemic-era peaks. Recent readings were driven mainly by conflict-related shortages of energy and industrial products and, to a lesser extent, shortages of AI-related computer chips. In the model used in the note, a shock matching the average increase in the index from March to May 2026 reduces world GDP growth by 0.4 percentage points after one year and raises world headline prices by 0.2 percent after one year. The note adds that shortages have historically been persistent, which would make the drag on activity and the rise in inflation longer lasting if the current episode follows past patterns. It also cautions that the present disruptions could fade faster than the historical record suggests.

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