Former US Treasury Secretary Yellen says Iran war to bring more inflationary pressure
Policymakers had signalled an expectation for one interest-rate cut in 2026, unchanged from their December forecasts
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[HONG KONG] Former Treasury Secretary and ex-Federal Reserve Chair Janet Yellen said she still sees prospects for a US interest-rate cut later this year, though the unfolding oil shock caused by the war in Iran clouds the outlook.
“This is really a broad supply shock,” spreading from pump prices to LNG, fertilisers, food, shipping costs, and semiconductors, Yellen said at the HSBC Global Investment Summit in Hong Kong on Wednesday.
While the need to raise rates can’t be ruled out, stable long-run inflation expectations suggest that scenario remains unlikely for now, Yellen said.
“I suppose my guess would be that maybe there would be a cut later in the year. I think that’s entirely possible, the main scenario. But gee, a lot of things are possible,” the former Treasury chief said.
Minutes of the Fed’s March 17-18 meeting, released last Wednesday in Washington, showed a growing number of officials worried the Iran war could further stoke inflation and wanted to make clear that the central bank may have to consider raising interest rates.
In projections released after that meeting, policymakers had signalled an expectation for one interest-rate cut in 2026, unchanged from their December forecasts.
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Yellen reiterated concerns over the Fed’s independence under US President Donald Trump, warning his calls for lower interest rates risk undermining the credibility of the nation.
“How often does a president of a developed country, where our currency is the dominant reserve currency, express the view that interest rates should be set to reduce the debt service costs of the federal debt? When you hear words like that, that’s what you hear in a banana republic,” Yellen said.
On incoming chair Kevin Warsh — who she overlapped with at the Fed for six years — Yellen said there’s a possibility he’ll clash with the president given his reputation as an “inflation hawk.”
She said Warsh’s confidence that artificial intelligence will unleash a major increase in productivity may help explain how he got the job as Fed chair. BLOOMBERG
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