Fed Rate Cut at Risk: Janet Yellen Flags Inflation Concerns Amid US-Iran War

The hopes of a Fed rate cut are fading amid escalating geopolitical tensions. Former Treasury Secretary Janet Yellen has warned that the US-Iran war could push inflation higher and slow down economic growth. This could make the Federal Reserve think twice before any interest rate cuts.

Fed Rate Cut Unlikely, Warns Janet Yellen

According to a Bloomberg post earlier today, Janet Yellen, the former Treasury Secretary, shed light on the least possibility of a Fed rate cut amid the ongoing US-Iran war. She stated that the geopolitical issues may slow down the US economy and increase inflation. Yellen’s words read,

“I think the recent Iran situation puts the Fed even more on hold, more reluctant to cut rates than they were before this happened.”

This statement comes in contrast to BitMEX founder Arthur Hayes’ projection. As CoinGape reported yesterday, Arthur Hayes believes that the Fed rate cut is more likely if the US-Iran conflict continues.

It is worth noting that the Fed rate cut discussions have resurfaced, coinciding with the deepening US-Iran war. With the death of the Iranian Supreme Leader Ayatollah Ali Khamenei, the issues escalated, and both the US and Iran pledged to continue the war.

As more countries like Germany, the UK, and France joined forces against Iran, there is growing speculation that World War III has already begun. Amid these heightened tensions, the Fed rate cut is currently at risk, stated Yellen.

Inflation Still Above Target as Oil Prices Climb

Further, Janet Yellen pointed out that inflation is currently around 3%, which is above the central bank’s goal of 2%. According to her, in addition to the ongoing US-Iran conflict, President Donald Trump’s tariffs have also contributed to the current inflation rate.

Even before these geopolitical tensions increased, the Federal Reserve was unwilling to reduce interest rates due to weakness in the labor market. The officials have been waiting for the inflation to slow down before any further Fed rate cut. But things changed with the escalating issues.

Now, the rise in oil prices due to the Iran conflict is adding more pressure. Janet Yellen stated that if the Strait of Hormuz remains closed for more days, oil prices could stay even higher, further worsening the situation.

Additionally, Yellen stated that the Fed is concerned about how the public would perceive the bank’s efforts. Officials worry that market participants may think the central bank is not serious about bringing inflation down from 3% to its 2% target.

If the public believes like that, inflation expectations could rise and become harder to control. This may lead to higher inflation for a longer period, pushing the central bank to take a cautious stance.