President Donald Trump’s demands for the Federal Reserve to lower interest rates have been met with resistance, as Fed officials wait to see how his administration’s policy changes affect the economy first. Now, a new factor has emerged that could delay a rate cut: the conflict between Israel and Iran.
The attack on Iran’s nuclear and military sites by Israel has sent global oil prices surging, making investors worry about inflation rising across the world. This could give the Fed pause at its upcoming two-day policy meeting next week.
“We’re not in a rush to cut rates because we don’t know how the tariffs will play through into the economy,” said Robert Sockin, senior global economist at Citigroup. “If this situation deepens further and oil prices stay high, it would just add to the challenges the Fed is already facing with potential tariffs pushing up inflation.”
Trump’s policy shifts on trade and immigration could raise unemployment and jack up prices, making forecasters estimate the economy’s future with less confidence.
The Fed has time to wait before cutting rates again due to the resilience of the US labor market. In May, employers added 139,000 jobs, and the unemployment rate held steady at 4.2%. Job openings unexpectedly increased in April.
Instead of a rate cut now, the Fed could consider one if the economy is crumbling, even with high oil prices. “We’ll see how long oil prices remain elevated,” said Jay Bryson, chief economist at Wells Fargo. “By the end of the summer, you may see weaker job growth, and some federal employees taking buyouts may roll off payrolls by November.”
Investors are betting on a rate cut in October, but the Fed will release its new projections next week, providing more clarity on when to expect a rate cut.
Source: https://edition.cnn.com/2025/06/14/business/fed-oil-prices-israel-iran