Fed Rate Hike Possible as Inflation Risks Become Priority, Austan Goolsbee Says

Chicago Fed President Austan Goolsbee has said that certain circumstances may warrant the Fed to raise interest rates, alluding to inflation. This comes as the odds of a Fed rate hike have climbed over the last week due to inflationary pressure from the U.S.-Iran war on the global economy.

A Fed Rate Hike Could Happen If Inflation Gets Out of Control

During an interview on CNBC, the Fed President said that the U.S. central bank may need to raise interest rates depending on how the war in the Middle East plays out and its impact on inflation. “I could see circumstances where we would need to raise rates if it were going a different way, and inflation was getting out of control,” he said. Goolsbee also opined that inflation was a greater risk at the moment than employment.

This comes as a Fed rate hike becomes more likely than a rate cut this year. As CoinGape reported, Bank of America warned last week that the central bank could raise interest rates if the labor market remains stable and there is a sustained oil shock due to the Iran war.

Meanwhile, Goolsbee isn’t ruling out a rate cut this year despite growing inflation concerns. “We could be back to the environment with multiple rate cuts for the year if inflation behaves,” the Fed president noted.

Notably, the Fed held interest rates steady for the second consecutive meeting at last week’s March FOMC meeting. The committee said that the implications of the U.S.-Iran conflict for the U.S. economy are uncertain, suggesting that they will continue to decide on a meeting-to-meeting basis. Chair Jerome Powell said that a Fed rate hike isn’t the base case for any member but warned that the Iran war could drive inflation higher in the near term.

Stephen Miran Says Too Early To Change Outlook

According to a Bloomberg report, Fed Governor Stephen Miran said that the U.S. central bank should not set monetary policy based on short-term considerations that relate to the U.S.-Iran war. “We should wait for all the information to come in before really changing our outlook,” he said.

Miran added that it is still too early to have a clear view of what things will look like in the coming months. As such, he believes it is too early to consider a Fed rate hike. It is worth noting that the Fed governor was the only dissent at last week’s meeting, voting in favor of a 25-basis-point (bps) rate cut.

The odds of a Fed rate hike this year had climbed to as high as 28% on Polymarket but have now sharply dropped following reports of talks between the U.S. and Iran to end the war. Polymarket data show that the odds currently stand at 24%.

Crypto traders are still betting that the Fed will make zero rate cuts this year as inflation concerns mount. There is currently a 33% chance that the Fed won’t lower rates this year, a shift from earlier in the year when traders were pricing in up to three cuts.