Economists say that while the Federal Reserve is waiting to assess the possible impact on inflation, Israel’s attack on Iran may delay the Fed’s timetable for cutting interest rates.
Crude oil prices climbed to their highest level in months on Friday as Israeli attacks raised investors’ concerns about a broader conflict in the Middle East, a key region for global energy supply. Joseph Brusuelas, the chief economist of RSM US LLP, said that in the case where US President Trump’s large-scale tariffs on trading partners previously might lead to a rise in inflation, the increase in oil prices might intensify inflationary pressure. Therefore, it is unlikely that the Federal Reserve will take any major actions in the short term.
In a report on Friday, Bloomberg economists Anna Wong and Tom Orlik estimated that if oil prices rose further to $100 per barrel, the prices of all types of gasoline in the United States would increase by approximately 17%, from $3.25 per gallon to $4.20, which would bring the inflation rate in the United States to 3.2% in June.
It is worth noting that Natasha Kaneva, the chief commodities analyst at JPMorgan Chase, analyzed in her newly released report that in the worst-case scenario, Iran’s oil exports might decrease by 2.1 million barrels per day, and one-third of global oil production in the Middle East might be affected. The soaring oil price to $130 is not empty talk. She further pointed out that if the conflict expands, the oil price response will increase exponentially rather than linearly. If the Strait of Hormuz is blocked, the oil price may soar to the range of $120-130.
The next interest rate meeting of the Federal Reserve is scheduled to be held from June 17th to 18th. The market generally expects that it will keep the benchmark interest rate unchanged and release the latest forecast on future policy trends. According to data from the futures market, investors currently expect about 1.9 interest rate cuts of 25 basis points by the end of 2025, lower than the approximately 2.1 cuts predicted on Thursday.
However, Michael Feroli, the chief U.S. economist at JPMorgan Chase, is cautious about the possibility of the situation in the Middle East being mentioned in the statement after the Federal Reserve’s meeting next week. He said, “For now, we doubt whether the situation in the Middle East is worth mentioning.”
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