Chicago Federal Reserve Bank President Austan Goolsbee expressed concern on the 7th that the U.S.-Iran conflict could simultaneously slow U.S. economic growth and push inflation higher, placing the Federal Reserve in a difficult position with no clear policy solution readily available.

Speaking at the Detroit Economic Club, Goolsbee noted that price increases stemming from tariffs were expected to gradually subside, but the war has introduced a new shock. With oil prices continuing to rise, inflation could become more entrenched, posing a threat to the current labor market, which he described as "stable but not strong."

This situation, he said, leaves the Fed facing a dilemma—lacking a clear policy path and making it difficult to determine whether further tightening or a shift toward easing is appropriate. Goolsbee warned that the worst-case scenario would be if high oil prices trigger a "stagflationary shock" before tariff-related inflation has fully receded. This could weaken consumer confidence, leading households to cut spending and increase savings, ultimately dragging the U.S. economy into a recession with stagflation characteristics.

Goolsbee also described his outlook for the U.S. economy as "cautious, even somewhat nervous." In a subsequent interview with a local Detroit radio station, he added that due to the uncertain outlook, discussions within the Fed regarding the next policy steps are likely to be quite intense.

Last month, the Federal Reserve held short-term interest rates steady in the range of 3.5% to 3.75% and signaled that rate cuts remain possible later this year if inflation moves sustainably toward the 2% target. Market expectations currently widely anticipate that the Fed will keep interest rates unchanged for the remainder of the year.