Fed’s Daly warns oil shock may delay inflation drop

Federal Reserve official Mary Daly has warned that the recent oil price shock linked to the Iran conflict could delay progress in bringing inflation back to target.

Speaking in an interview, Daly said the U.S. economy remains fundamentally strong, with a stable labor market and monetary policy currently “in a good place.” However, rising energy prices are likely to extend the timeline for reducing inflation to the Fed’s 2% goal, News.Az reports, citing Reuters.

“We had work to do before the oil price shock; with it, the work just takes longer,” Daly said.

The surge in oil prices—driven by the conflict involving Iran—has already pushed gasoline prices higher, adding pressure to consumer costs. Although a recent ceasefire has brought some relief, Daly emphasized that uncertainty remains over how long the stability will last.

The Fed has so far kept its benchmark interest rate in the 3.50%–3.75% range this year. Before the escalation, policymakers had expected inflation to ease, potentially allowing for one or two rate cuts later in 2026.

Now, the outlook is less certain.

Daly outlined two main scenarios. If the conflict stabilizes and oil prices fall, the Fed could resume its path toward rate cuts as inflation gradually declines. However, if disruptions to energy supplies persist, inflation may remain elevated—forcing the central bank to hold rates steady for longer.

A rate hike, she noted, is currently less likely than either a cut or a pause.

Daly also stressed the delicate balance facing policymakers: controlling inflation without harming employment.

“If we bring inflation down at the expense of jobs, we put families in a difficult position,” she said.

Recent data is expected to reflect rising consumer prices, with higher fuel costs already affecting households, farmers, and travel demand.

As global tensions continue to influence energy markets, the Fed’s next moves will depend heavily on how inflation and economic conditions evolve in the coming months.

News.Az 

By Aysel Mammadzada