Austan Goolsbee has warned the Federal Reserve may need to keep interest rates on hold until 2027 if the Iran war keeps oil prices high and inflation stuck above target.
Summary
- Chicago Fed chief Austan Goolsbee says rate cuts might not arrive until 2027 if oil stays elevated.
- War‑driven energy prices threaten the Fed’s path back to 2% inflation and could even force fresh hikes.
- Markets that once priced multiple 2026 cuts now face a longer “higher for longer” regime.
Austan Goolsbee has warned the Federal Reserve may need to keep interest rates on hold until 2027 if the Iran war keeps oil prices high and inflation stuck above target.
Speaking at the Semafor World Economy conference on Tuesday, the Chicago Federal Reserve president said “it’s our job to get inflation back to 2%,” and stressed that persistently expensive energy could “start pushing” potential rate cuts “out of '26.”
Before the conflict, Goolsbee had expected tariff‑driven inflation to ease this year and saw room for “even multiple rate cuts in 2026,” but he told AP that the longer inflation “stays up, realistically, I think that starts pushing it out of '26.”
Fed weighs oil shock against 2% inflation goal {#fed-weighs-oil-shock-against-2-inflation-goal}
The Fed is currently holding its benchmark federal funds rate in a 3.50%–3.75% range after leaving policy unchanged at its March meeting, even as war‑related supply disruptions sent oil toward triple‑digit levels.
Minutes from that March meeting showed officials worried that the Iran war’s impact on energy could keep inflation above the 2% target for longer and “could call for rate hikes” if price pressures fail to ease.
In recent projections, Fed policymakers lifted their 2026 inflation forecast to around 2.7%, acknowledging that gasoline and other energy costs threaten to slow the disinflation process that markets had hoped would justify earlier cuts.
Markets recalibrate ‘higher for longer’ {#markets-recalibrate-higher-for-longer}
Traders who once priced four 2026 rate cuts have already slashed expectations to a single move after oil briefly spiked to about $115 per barrel during the Iran conflict, pushing headline inflation back toward 3%.
Goolsbee underlined that if inflation were to “stay elevated” and the Fed “never got to see the decrease in inflation,” any optimism around near‑term easing would fade, and officials would need to keep borrowing costs restrictive.finance.
That stance echoes Fed Chair Jerome Powell, who recently cautioned that with the Iran war clouding the outlook, the central bank has “limited flexibility” to cut until there is clearer evidence inflation is moving sustainably to 2%.
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