Fed’s Next Move Hinges on Inflation Fears as Iran War Drives Up Prices

The Federal Reserve’s next move on interest rates may depend heavily on how Americans feel about inflation as the conflict with Iran continues to impact global markets.

Jerome Powell said the central bank is closely watching inflation expectations, noting they are a key factor in determining how the Fed responds to rising prices.

The ongoing war has driven up oil prices, with global benchmarks briefly climbing above $116 per barrel. The conflict has also disrupted activity in the Strait of Hormuz, a critical channel for energy supplies, pushing up costs for gas, plastics, and fertilizers.

Those rising costs are beginning to weigh on Americans. Consumer sentiment has dropped, while short-term inflation expectations have increased, raising concerns about the broader economic outlook.

Powell suggested the Fed may hold interest rates steady for now, noting that policy changes take time to impact the economy and that energy shocks can be temporary.

However, the situation remains uncertain. If inflation continues to climb or expectations worsen, analysts say the Fed could be forced to reconsider its approach, including the possibility of raising rates instead of cutting them.

The central bank is also balancing concerns about a fragile labor market, making its decision even more complex as the conflict continues.

Powell acknowledged the unpredictability of the situation, saying the ultimate economic impact will depend on how long the conflict lasts and how far it spreads.

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