Iran-Israel Conflict And Oil Prices Make The Fed's Interest Rate Cut Delayed

Illustration of the flag of the United States (Pixabay)

JAKARTA The hope of the President of the United States (US) Donald Trump for the Federal Reserve (The Fed) to immediately cut the benchmark interest rate is not expected to materialize in the near future. Apart from the uncertainty of Trump's economic policy, the increasing tension between Iran and Israel is a new factor that complicates the situation.

Israel reportedly launched a massive attack on a number of Iranian military and nuclear facilities, which immediately triggered a surge in world oil prices. This condition raises concerns over further inflationary pressures in the US.

"If the conflict deepens and oil prices hold high, it will add to the challenges for the Fed, especially with the potential for an increase in tariffs that could also drive inflation," said Citigroup's senior global economist, Robert Sockin, quoted by CNN International, Sunday, June 15.

According to Sockin, the Fed is still cautious and tends to wait for confirmation of the impact of tariff policies before taking steps to cut interest rates. He estimates that this step will only be carried out by the end of 2025.

Wells Fargo chief economist, Jay Bryson, added that if oil prices remain high due to conflicts in the Middle East, inflation could increase, especially if the escalation of conflicts continues.

President Trump's policies, including trade and immigration, are said to have helped create pressure on labor prices and markets, as well as making economic projections increasingly difficult to predict.

Currently, market participants predict that a new cut in interest rates will occur in October 2025. Meanwhile, the Fed's official projection regarding the direction of monetary policy will be released in a meeting of two days next week.