Federal Reserve's Goolsbee Warns Iran War and Oil Shock Could Trigger Stagflation Risks

Investing.com - On Tuesday, Chicago Federal Reserve Bank President Austan Goolsbee said he is concerned that a war involving Iran will drive up inflation while weighing on economic growth, creating a challenging situation for central banks, and that there is no clear policy response plan.

“My biggest concern right now is that we have to deal with an oil shock, which will raise prices in a stagflationary way,” Goolsbee said in Detroit. “Price spikes caused by tariffs should have faded, but before that could happen, this issue came up again.”

Goolsbee described the current environment as unsettling and noted that the Fed does not have a clear playbook to follow. He said that rising oil prices represent a stagflationary shock and that he expects gasoline prices of $5 per gallon to affect supply chains.

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The Fed official said the labor market remains stable but not optimistic, and added that he is taking a cautious and concerned view of the economy. He warned that long-term high inflation could become entrenched in the economy, although he hopes the impact from oil will be temporary.

Goolsbee emphasized the Fed’s independence, saying that the Federal Reserve Act contains no provisions requiring it to please the stock market or the president. He said that it would be a bad idea to actively discuss removing Fed independence, and warned that inflation could return with a vengeance.

This Fed official said that markets are worried about inflation returning to the economy.

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