Federal Reserve Holds Interest Rates at 3.5-3.75%

U.S. Federal Reserve Bank of Minneapolis President Neel Kashkari, appearing on CBS’s Face the Nation television program Sunday, said the longer the Iran war goes on, the greater the risks of higher inflation and economic damage, all of which limit how much guidance the central bank should provide on rate policy right now.

Kashkari added that he was very focused on the war and its impact on inflation and economic demand amid the ongoing closure of the Strait of Hormuz, a chokepoint for 20% of global oil and gas supplies.

Given the risks and the uncertainty around all aspects of the war, Kashkari said the Fed may even have to raise rates. “I don’t feel comfortable signaling that a rate cut is in the cards. You know, we might be in worse scenarios, we might have to go the other direction,” he said.

The war began when President Trump and Israel launched airstrikes on Iran in February and has led to a massive surge in energy prices around the globe. Kashkari voted against language in the most recent Federal Open Market Committee meeting's monetary policy statement. He was joined in dissent against that guidance by the leaders of the Cleveland and Dallas regional Fed banks.

The three regional Fed dissenters supported holding rates steady and said interest rates may need to go up or down depending on how the war affects the economy. Governor Stephen Miran dissented in favor of a rate cut. 5% year-over-year as of March against the Fed’s 2% target.

U.S. inflation data bad news in a television appearance on Saturday. U.S. and Israel suspended their bombing campaign against Iran four weeks ago.

Kashkari said even a best-case scenario from the war pointed to extended disruptions. He talked to the CEO of a global company headquartered in Minnesota that has supply chains all around the world just last week, and the CEO estimated that even if the strait reopened today, it probably takes six months for their supply chains to return to something like normal.

Treasury Secretary Scott Bessent, appearing on Fox News’ Sunday Morning Futures, said Sunday he is optimistic that oil prices will be much lower after the war ends.

Bessent said the war, as well as other developments in oil production dynamics, gives me a lot of optimism that oil prices on the other side of this conflict are going to be much lower than they were going in, or at the beginning of the year, or at any point in 2020-2025. He added that futures markets are eyeing lower energy prices later this year. U.S.

Naval blockade of Iran. U.S. is a big winner in the energy crisis because of its ability to export oil, which is only limited by its ability to load fuel onto ships and send it abroad.

Barclays analysts said in a note on Friday that the energy price surge had so far been relatively contained. They added that further disruptions to the flow of energy would drive inventories of key fuels to critically low levels. South Africa central bank chief Lesetja Kganyago said policymakers will very carefully monitor data for their next rate decision as the Iran war clouds inflation and adds global uncertainty.

Jerome Powell’s tenure as Fed chair ends later this month.