The Fed’s battle against inflation risks turning into a forever war—and may last as long as Operation Iraqi Freedom while Iran ‘status quo’ drags on

Resumen detallado

“We’ve been above 2% for almost six years, and while it sometimes we were making progress, lately we’re not making any progress, and if anything, it’s going the wrong way.”

In a few months, the Federal Reserve will be able to count six years that inflation has been above its 2% target, and central bankers’ own forecasts put “mission accomplished” sometime in 2029.

That means the Fed could fall short on the price-stability portion of its dual mandate for eight straight years—or as long as Operation Iraqi Freedom lasted.

Despite the obvious differences with the bloody Iraq war, the Fed’s inflation fight is also driven by events in the Middle East, this time in Iran.

Inflation was trending lower at the start of the year, as the initial spike from President Donald Trump’s tariffs last year was wearing off. Then crude prices soared after Iran closed off the Strait of Hormuz and attacked regional energy infrastructure in retaliation for U.S.-Israeli strikes.

While oil exports have rebounded with the help of U.S. military protection, supplies of refined products like gasoline and diesel remain tight, inflicting more pain at the pump for consumers.

At the same time, GDP growth is running hot as the AI hyperscalers pour hundreds of billions of dollars a year into the economy, adding more pressure on prices.

This past week’s consumer price index for October came in hotter than expected and showed that inflation is spreading beyond energy categories into more goods and services, alarming Fed officials.

Chicago Federal Reserve President Austan Goolsbee called the data “borderline disturbing,” and fellow policymakers have indicated more rate hikes are needed, possibly even a jumbo-sized increase of 50 basis points.

Meanwhile, the Iran war shows no signs of ending soon. Trump has backed down from repeated threats to restart major combat operations, but has also shot down negotiations, saying the U.S. doesn’t need a peace deal with Iran.

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