Former Treasury Sec. Yellen Reportedly Sees Fed’s Rate Cut Job Become Complicated Due To US-Israel-Iran War

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

• If the closure of the Strait of Hormuz, through which much of the region’s oil gets shipped, lasts beyond a few days, then prices may remain elevated or go higher, Yellen said.
• Inflation is already running about a percentage point above the Fed’s target, she said.
• “Now you’ve got this Iran shock, with oil prices having moved up considerably — we don’t know what’s going to happen in the coming days,” Yellen reportedly said.

Former Treasury Secretary Janet Yellen has reportedly said that the job for the Federal Reserve will be complicated, as the duration of the Iran conflict's impact on the oil market will lead to both a hit to U.S. economic growth and an increase in inflationary pressures.

“I think the recent Iran situation puts the Fed even more on hold, more reluctant to cut rates than they were before this happened,” Yellen said via video to a conference in Long Beach, California, on Monday, according to Bloomberg. 

Inflation is already running about a percentage point above the Fed’s target, she said.

Inflation Worries

Inflation has become a talking point in the market, especially amid the ongoing U.S.-Israel-Iran war that has resulted in a spike in oil prices. Federal Reserve officials in January’s Federal Open Market Committee (FOMC) meeting signaled renewed worries over inflation, with several policymakers suggesting that the central bank may have to raise interest rates in an attempt to curb inflation.

Several Fed officials saw the likelihood for more rate cuts if inflation declined as they expected.

“Now you’ve got this Iran shock, with oil prices having moved up considerably — we don’t know what’s going to happen in the coming days,” Yellen said, speaking to S&P Global’s TPM26, as per the report. 

If the closure of the Strait of Hormuz, through which much of the region’s oil gets shipped, lasts beyond a few days, then prices may remain elevated or go higher, Yellen said.

How Did Markets React?

U.S. equities were mixed on Monday. At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was up by 0.36%, the Invesco QQQ Trust ETF (QQQ) jumped 0.4%, while the SPDR Dow Jones Industrial Average ETF Trust (DIA) fell 0.34%. Retail sentiment around the S&P 500 ETF on Stocktwits was in the ‘bullish’ territory.

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