- Key insight: Fed Gov. Lisa Cook, Gov. Michael Barr and Vice Chair Philip Jefferson said in separate appearances Thursday that uncertainty over tariffs and geopolitical tensions is shifting the balance of risks toward combating a rise in inflation.
- Expert quote: “The ongoing trade policy uncertainty and geopolitical tensions … pose upside risk to my inflation forecast.” — Fed Vice Chair Philip Jefferson.
- Look ahead: The officials’ views come as the Organization for Economically Developed Countries Thursday raised its forecast for inflation in 2026 and as economists are scaling back expectations for rate cuts in 2026.
Three members of the Federal Reserve’s rate-setting committee said Thursday that inflation risks are rising due to the ongoing war in Iran.
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In separate appearances, Fed Gov. Lisa Cook, Gov. Michael Barr and Vice Chair Philip Jefferson said U.S. military actions against Iran — and the resulting disruptions in the global oil supply — have shifted the balance of risks toward higher inflation.
Barr and Jefferson emphasized that the Fed’s current monetary policy stance allows it to hold steady while evaluating incoming economic data. The federal funds rate target range is
“Given the considerable uncertainty about the potential effects of developments in the Middle East on our economy … it makes sense to take some time to assess conditions,” said Barr during a speech at the Brookings Institution. “Our current policy stance puts us in a good place to hold steady while we evaluate incoming data, the evolving forecast, and the balance of risks.” Speaking at an event hosted by the Federal Reserve Bank of Dallas, Jefferson said he expects overall inflation to rise because of higher energy prices stemming from the conflict in the Middle East.
“Looking ahead, I believe that the current policy stance leaves us well positioned to determine the extent and timing of additional adjustments to our policy rate based on the incoming data, the evolving outlook, and the balance of risks in a timely manner.” Jefferson said.
Cook added that inflation has remained above the Fed’s 2% target for some time, and that the challenge of reaching its inflation target is likely to be more difficult due to unfolding geopolitical pressures.
“I would argue that the inflation risk is greater right now as a result of the Iran war,” Cook said during an event hosted by Yale University. “Certainly we haven’t seen, in five years, our inflation target being met, and this could have potentially a substantial effect on inflation.”
All three officials highlighted that the Trump administration’s tariff policy remains a concern for inflation.
Jefferson said he had expected disinflation to resume once higher tariffs stopped pushing up consumer prices, but he is now uncertain how things will unfold.
“The ongoing trade policy uncertainty and geopolitical tensions … pose upside risk to my inflation forecast,” he said. Barr also highlighted concerns on the effects of tariffs on goods inflation, but also noted that non-housing services inflation readings have also been elevated. Higher inflation over a longer period runs the risk of inflation expectations taking hold among consumers, a dynamic that can be very difficult and painful to reverse, he said.
“Core inflation, which excludes volatile food and energy prices and is a good guide to future inflation, likely was 3% in February, about where it was a year ago,” he said. “The longer inflation remains above 2%, the greater the risk that it becomes entrenched in expectations, making it harder to achieve the Federal Open Market Committee’s goal.”
The Fed officials said the labor market, though showing
“With respect to the labor market, I see it as being in balance, but precariously,” Cook said. “We’re watching it really, really carefully, but my concern about risk to the dual mandate is more toward inflation.”
Jefferson said he views the labor market as “roughly in balance,” noting he expects the unemployment rate to remain near its current levels throughout the year.
