US Stock Markets | Iran war clouds policy path as Fed watches price pressures rise

Federal Reserve Governor Lisa Cook has signalled growing concern that the ongoing conflict involving Iran is tilting the central bank’s risk outlook more towards inflation, even as the U.S. labour market remains broadly stable but fragile, Reuters reported.

Speaking at an event at the Yale School of Management, Cook indicated that while risks to the Federal Reserve’s dual mandate of price stability and full employment are still broadly balanced, inflation pressures have intensified in recent weeks. She highlighted that the evolving geopolitical situation has increased the likelihood of price pressures persisting above the central bank’s target.

The labour market, in her assessment, continues to hold steady, but only narrowly so. Reuters reported that Cook described employment conditions as balanced, though vulnerable to shifts in economic momentum, particularly if higher costs begin to weigh on business activity and hiring.


Cook’s remarks come as the Federal Reserve grapples with renewed inflationary risks stemming from geopolitical developments. Reuters noted that the conflict involving Iran, which began in late February with military action by the United States and Israel, is expected to exacerbate price pressures that had only recently begun to moderate. She also pointed to earlier tariff measures introduced under President Donald Trump as having already disrupted the disinflation process, with the current conflict adding further strain.

A key channel for these inflationary pressures has been the sharp rise in global oil prices. The benchmark crude prices have surged from around $75 per barrel in late February to above $100, driven largely by disruptions to oil flows through the Strait of Hormuz, a critical artery for global energy supplies. Iran’s effective restriction of shipments through the passage has removed a significant portion of global supply from the market, amplifying price volatility.

The Federal Reserve, which last week held its benchmark interest rate steady in the 3.50% to 3.75% range, had previously signalled that a rate cut later in the year remained a possibility. However, Reuters reported that futures markets are now pricing in virtually no chance of a rate reduction in 2026, underscoring how quickly the outlook has changed.

Cook’s comments reinforce a broader message emerging from the central bank that while progress on inflation had been underway, external shocks—particularly those tied to geopolitical tensions—pose a significant risk to that trajectory. As policymakers continue to monitor incoming data, the balance between controlling inflation and sustaining economic growth is becoming increasingly delicate.