Yellen says Iran conflict keeps the Federal Reserve on hold, complicating rate cut prospects

LootboxPhobia · 2026-03-02T18:55:05+00:00

Former Treasury Secretary Yellen stated that the Iran conflict will impact U.S. economic growth, exacerbate inflation, and make the Federal Reserve less willing to cut interest rates. She pointed out that oil prices are rising due to the situation and expressed concern about market confidence in the Fed's ability to reduce inflation. Despite the risks, she remains optimistic about the U.S. economic outlook.

LootboxPhobia

2026-03-02 18:55:05

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Investing.com - Former Treasury Secretary Janet Yellen stated that the Iran conflict will hurt U.S. economic growth and increase inflation pressures, making the Federal Reserve less willing to cut interest rates.

On Monday, Yellen told a meeting in Long Beach, California via video, “I think the recent Iran situation has made the Fed more cautious, even less willing to cut rates than before this happened.”

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Yellen pointed out that the current inflation rate is about one percentage point above the Fed’s 2% target. She said that President Donald Trump’s tariff policies contributed approximately 0.5 percentage points to the current 3% inflation rate.

Before the Iran turmoil, the Fed had already addressed a soft labor market and was waiting for inflation to fall back. Speaking at S&P Global’s TPM26 shipping industry conference, Yellen said that oil prices have surged significantly due to the Iran situation.

Yellen stated that if the blockade of the Strait of Hormuz lasts more than a few days, prices could stay high or even rise further. Most of the region’s oil is transported through this strait.

Yellen said the Fed must worry that market participants will believe the central bank will bring inflation down to 3% but not seriously aim for 2%. She added that if this mindset dominates, the Fed will be concerned about permanently higher inflation and worsening trade-offs, which is why the central bank might remain cautious.

Yellen said that aside from serious risks like the Iran conflict, the U.S. economy is currently quite healthy, and she holds a mixed outlook on the economic prospects.

Yellen also discussed the Trump administration’s actions toward the Fed. She said it is “almost unimaginable” that the president would try to remove Board Member Lisa Cook. The Supreme Court has not yet issued an opinion, but Yellen added that Trump might lose the case.

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