The conflict in Iran could potentially trigger a surge in inflation and a slowdown in the U.S. economy, cautioned Chicago Federal Reserve Bank President Austan Goolsbee.
Goolsbee voiced his concerns at the Detroit Economic Club on Tuesday and noted that the war has already led to a spike in oil prices. He expressed concern over a potential “stagflationary outbreak” resulting from high oil prices and the U.S. consumer losing confidence.
This could further embed inflation into the economy, escalating prices and jeopardizing an already “stable but not great” job market.
He also underscored the challenging position of the Federal Reserve, which lacks a clear “cookbook” for managing such a situation. Stressing the importance of the Fed’s independence, he said that its primary duties are stabilizing prices and maximizing employment, not appeasing anyone.
“There’s nothing in the Federal Reserve Act that says to make sure the stock market is happy. And there’s nothing that says to make sure the president or anyone else is happy,” Goolsbee said.
Oil Shock Clouds Fed Rate Outlook
The Iran war has significantly impacted oil prices, leading to speculation about Federal Reserve rate hikes. The Fed kept short-term interest rates in the 3.5%-3.75% range last month and hinted at a possible interest-rate cut later in the year if inflation moves towards the central bank’s 2% goal. Policymakers are scheduled to meet again later this month.
A report from early April indicated that markets were pricing a roughly 45% probability of the Federal Reserve raising rates in 2026, up from just 12% before the war. However, Goldman Sachs argued that this was overly hawkish and that the Fed was unlikely to react.
Limited Impact Of Ceasefire On Oil Prices?
On Tuesday, the U.S. and Iran agreed on a two-week ceasefire contingent upon Tehran ensuring safe passage through the Strait of Hormuz, a critical waterway for 20% of the global energy transit. The conflict, which spanned nearly 40 days, led to immense volatility in crude oil and gas prices.
According to Patrick De Haan, head of petroleum analysis at GasBuddy, there may not be an immediate decline in energy prices despite the ceasefire. “A cease-fire itself would do little or nothing to impact oil prices directly, unless it directly and clearly impacts the current de-facto shutdown status of the Strait of Hormuz,” De Haan wrote.
While WTI crude fell 13.66% to $97.52 per barrel, and Brent crude dropped 12.57% to $95.54 per barrel, following the ceasefire news, it is still way above the $70–72 per barrel level before the war outbreak in late February.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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