- US inflation has been fuelled in recent months by the Iran war, but it has also been driven by the repeated shocks of the pandemic, the Russia-Ukraine war and Trump's disruptive tariff policies.
- Consumer inflation eased to 3.5 per cent year-on-year last month, but is expected to rise again on the back of seesawing oil prices from Trump's war on Iran.
- Policymakers' patience is running thin when it comes to inflation, and most, if not all, stand ready to act if inflation does not soon move back towards 2 per cent.
- Since the Fed's last meeting six weeks ago, a number of policymakers have been vocal in their concern about inflation, which has remained above the Fed's long-term 2 per cent target for more than five years.
- The Fed 'has to be ready to tighten monetary policy to prevent a repeat of the 2021-to-2022 inflation episode', said Fed Governor Christopher Waller on Jul 13.
- Diane Swonk, chief economist at KPMG, stated, 'I don't expect a rate hike, but I do expect dissents.'
- Swonk argued that the 'hawks' at the Fed - those policymakers who consider it appropriate to raise interest rates to combat high prices - were multiplying.
The US Federal Reserve is facing increasing pressure to adjust interest rates as inflation remains a concern, particularly due to the ongoing Iran war initiated by President Trump. While the Fed is expected to keep rates steady, dissenting voices among policymakers are growing.1
Consumer inflation recently eased to 3.5% year-on-year, but analysts predict it could rise again due to fluctuating oil prices linked to the conflict in Iran. Fed Governor Christopher Waller emphasized the need for the Fed to be prepared to tighten monetary policy to avoid a repeat of the inflation surge seen between 2021 and 2022.5
Diane Swonk, chief economist at KPMG, noted, “I don't expect a rate hike, but I do expect dissents,” highlighting the increasing number of ‘hawks’ within the Fed who advocate for rate increases to combat persistent inflation. The Fed has struggled to maintain inflation at its long-term target of 2%, with rates remaining above this threshold for over five years.67
The current inflationary pressures are attributed not only to the Iran war but also to the lingering effects of the pandemic, the Russia-Ukraine war, and Trump's tariff policies. As the Fed approaches its next meeting, the balance between maintaining economic stability and addressing inflation will be a critical focus.
“Inflation has been driven by multiple factors, including the Iran war and the pandemic, with consumer inflation easing to 3.5% but expected to rise again. Fed Governor Christopher Waller emphasized the need to tighten monetary policy to avoid a repeat of the 2021-to-2022 inflation episode.”
