The longer the Iran conflict continues, 'the more it pushes off' rate reductions, says the Chicago Fed president
Chicago Federal Reserve president Austan Goolsbee warned that any prospect of interest rate cuts could be delayed further if the war-linked surge in oil prices continues to keep inflation elevated, complicating the Federal Reserve’s path back toward its 2% target.
Goolsbee’s remarks underscore how geopolitical shocks are clouding what had earlier appeared to be a more favorable outlook for monetary easing. While financial markets have continued to look for eventual rate cuts, Fed officials are signaling that stubborn inflation — particularly from energy-related supply shocks — may force policymakers to remain cautious for longer.
“[Three months ago] I was on the more optimistic side that we could have the tariff impact on inflation. Be one and done. We’ll get back on the path to 2%. We could have multiple rate cuts in 2026 ... Now with this [war], the longer this goes, the more it pushes that off,” Goolsbee said at the Semafor World Economy conference.
His comments reflect a notable shift in tone. Before the conflict pushed oil prices higher and lifted gasoline prices in the United States above $4 per gallon, Goolsbee had been among the more optimistic policymakers who believed tariff-related inflation pressures would ease and allow the central bank to resume cutting rates. That outlook has become less certain as higher energy prices threaten to feed into broader inflation expectations.
Goolsbee said the Fed now faces a more difficult balancing act if the supply shock persists. “Figure out which side is getting worse, more, and how long do we think each side being out of alignment is going to last? That’s what we’ll have to do if this keeps getting worse,” he said.
The Federal Reserve held its benchmark short-term interest rate steady at 3.50% to 3.75% at its March meeting, and most policymakers at the time still projected that at least one rate cut this year could be appropriate. But Goolsbee’s latest remarks suggest that timeline may slip if inflation fails to resume its downward path.
“I thought there could be even multiple rate cuts in 2026; the longer this goes where we never got to see the decrease in inflation (and) if the inflation stays up, realistically, I think that starts pushing it out of ’26,” Goolsbee said. “It’s our job to get inflation back to 2%.”
He also emphasized that the Fed’s options remain open depending on how conditions evolve. “There are circumstances where rates could go up,” he said. “There are circumstances where all of this proves temporary: we resolve the oil price shocks in the Middle East and we go back and inflation comes down and it looks like we’re headed back to 2% and then rate decreases are on the table, too.”
The remarks come as President Donald Trump continues to pressure the Fed for lower rates and has expressed confidence that Kevin Warsh, his nominee to succeed Fed Chair Jerome Powell, would be more willing to cut. Still, Goolsbee’s comments suggest that any incoming Fed leadership will remain constrained by inflation risks tied to the broader global environment.
For now, the central bank appears poised to wait, with oil prices and inflation expectations likely to remain central to its next move.
