Austan Goolsby has warned that the Federal Reserve may have to keep interest rates on hold until 2027 if oil prices remain high due to the Iran war and inflation rises above target.
Austan Goolsby has warned that the Federal Reserve may have to keep interest rates on hold until 2027 if oil prices remain high due to the Iran war and inflation rises above target.
“It’s our job to get inflation back to 2%,” the Chicago Fed president, speaking at the Semaphore World Economic Conference on Tuesday, said, stressing that continued rises in energy prices could “start to push” potential interest rate cuts “in 2026 and beyond.”
Before the dispute, Mr. Goolsby expected tariff-driven inflation to ease this year and saw room for “even multiple rate cuts in 2026,” but told The Associated Press that if inflation continues to rise for an extended period of time, “I think realistically we’ll be pushing inflation beyond 2026.”
The Fed is currently keeping its benchmark federal funds rate in a range of 3.50% to 3.75% after leaving policy unchanged at its March meeting, even as war-related supply disruptions have pushed oil prices near triple-digit levels.
Minutes from the March meeting showed officials feared the energy impact of the Iran war could keep inflation above the 2% target for an extended period of time, and that “rate hikes may be required” if price pressures are not eased.
In recent forecasts, Fed policymakers raised their 2026 inflation forecast to about 2.7%, acknowledging that gasoline and other energy costs threaten to slow the process of defusing inflation that markets had hoped would justify early interest rate cuts.
Traders who had previously priced in four rate cuts in 2026 have already lowered their expectations to just one after oil prices soared to around $115 a barrel at one point during the Iran conflict, pushing headline inflation back towards 3%.
Goolsby stressed that if inflation “remains high” and the Fed “never sees inflation coming down,” optimism for near-term easing will fade and the agency will need to continue to limit borrowing costs.
The stance echoes that of Fed Chairman Jerome Powell, who recently warned that the central bank has “limited flexibility” to cut interest rates until there is clear evidence that inflation is heading toward 2% sustainably, as the Iran war clouds the outlook.
