economy
With his war in Iran, Trump just made the next Fed chair’s job even harder
Just as President Donald Trump looks set to install a Federal Reserve chair aligned with his desire for lower interest rates, the president’s war on Iran likely makes those rate cuts harder to deliver.
TL;DR
- The conflict with Iran is expected to make interest rate cuts harder to achieve.
- Fed policymakers need to assess the impact of the Iran conflict on the US economy.
- Uncertainty surrounding US trade policy after the Supreme Court ruling on tariffs adds to economic concerns.
- Kevin Warsh, Trump's nominee for Fed chair, faces challenges in advocating for rate cuts due to potential inflation risks from the Iran conflict.
- Fed officials like Neel Kashkari are concerned about potential inflation shocks to the global economy.
- Warsh's argument for lower rates based on AI-driven productivity is being questioned by other Fed officials.
- The war's impact on inflation depends on its duration, severity, and disruption to oil supply.
- Goldman Sachs predicts higher inflation if oil prices remain elevated, potentially impacting the Fed's target.
- Attacks on Iran have already led to higher US gasoline prices.
- Central banks are sensitive to renewed inflation impulses, as the Fed has not consistently met its inflation target since early 2021.
- The Supreme Court ruling on tariffs and subsequent changes in tariff policy create uncertainty that can drag on the economy.
- Fed officials prefer to observe economic developments over several months before making policy decisions.