Oil prices climb as US-Iran tensions raise inflation concerns for the Fed
Escalating conflict between the United States and Iran is pushing crude futures toward $72 a barrel, prompting analysts to warn of higher inflation and limited room for Federal Reserve rate moves.
Oil futures are pointing to a rise in crude prices, with benchmarks expected to hover around $72 per barrel through the end of the year as tensions between the United States and Iran intensify. Iran’s claim that the Strait of Hormuz is effectively closed has heightened worries about supply disruptions, while the Islamic Revolutionary Guard Corps has said it attacked U.S. bases in Bahrain, Kuwait and Jordan, and U.S. Central Command reported a response after an Iranian attack on a commercial vessel.
The market’s expectation of higher oil prices is feeding into inflation forecasts, a factor that will be examined by the Federal Open Market Committee under new chair Kevin Warsh. Goldman Sachs chief U.S. economist David Mericle said that, although several forces could pull inflation lower in the coming months, a renewed escalation could lift monthly core inflation by three to four basis points, adding to the 4.2% rate recorded for May.
"The impact of yet another supply shock on the monetary policy debate could be more significant than the pass-through math alone suggests because it would add to frustration about what has already been a long series of supply shocks and the difficulty of knowing when they will end and would raise concern that they might eventually be enough to unanchor inflation expectations," Mericle wrote.
Goldman Sachs analysts also noted that the disruption could spur investment in alternative pipelines to bypass the region, potentially mitigating longer-term supply risks.