As geopolitical tensions heat up in the Middle East, the U.S. Federal Reserve is preparing to hike interest rates once more. Driving this decision is a sharp rise in oil prices, which could reignite inflationary pressure and disrupt economic stability.
🔹 Oil Prices Soar Amid Hormuz Crisis
The situation escalated after the U.S. launched airstrikes on three Iranian nuclear sites in retaliation for Iran’s earlier response to Israeli attacks. In a bold move, Tehran shut down the Strait of Hormuz—the world’s most critical oil trade route.
This act could have massive repercussions: JP Morgan warns that if the closure persists, oil prices could spike to $130 per barrel, pushing U.S. inflation back up to 5%. That would force the Fed to act decisively, just as it did in 2023 when it raised rates twice amid similar inflation.
🔹 Oil Shock Means Higher Borrowing Costs
Research by the Fed itself shows that persistent oil price increases weaken consumer spending, reduce investments, and depress the dollar. For oil-importing countries like the U.S., rising oil costs drain national wealth and hurt economic output.
In this environment, cutting interest rates would only add fuel to the fire. Analysts say that rate hikes are more likely, especially if oil prices keep rising.
🔹 Strait of Hormuz: The World’s Oil Lifeline
The 34-kilometer-wide strait handles 20% of global oil exports and more liquefied natural gas than the Panama and Suez Canals combined. It's the artery of the global energy market, and the U.S. Navy has maintained a presence there for decades due to its strategic importance.
If Iran follows through with a total closure, a military response from Washington, Tel Aviv, or both is almost inevitable.
U.S. Senator Marco Rubio called on China to de-escalate the situation, urging Beijing to pressure Tehran. China is Iran’s biggest oil customer and maintains strong diplomatic ties, while also publicly condemning Israeli airstrikes.
🔹 Trump Demands Cuts, Powell Stays Silent
Meanwhile, Donald Trump continues pushing for lower interest rates, just as he did during his re-election campaign in 2024. He has relentlessly attacked Fed Chair Jerome Powell, both at press conferences and online.
Powell, however, remains silent, avoiding political drama while focusing on economic risks. But with inflation poised to return, his position seems increasingly validated.
🔹 Fed Between Politics and Inflation
The Fed is now caught between Trump’s political pressure and the economic reality of rising energy costs. If oil does jump to $130, swift action will be needed.
“The bigger the oil shock, the harder it is to tame inflation,” experts warn. And all signs point toward further rate hikes, even if it slows economic growth in the short term.
#Fed , #JeromePowell , #Inflation , #TRUMP , #Geopolitics
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