By Matt Grossman

The war in Iran has for now made elevated inflation a greater risk for the Fed to address than the fragile labor market, Federal Reserve governor Lisa Cook said.

In a moderated conversation at Yale University, Cook said Thursday that the Fed's two goals--supporting employment and keeping prices in check--are still broadly in balance. But for now, she said, the Middle East conflict means that inflation is once again the more pertinent of the two risks, a challenging dynamic for a central bank that has wrestled with elevated inflation for the past five years.

"I would argue that the inflation risk is greater right now, as a result of the Iran war," Cook said.

The consequences of the war's oil shock are piling atop existing price pressures from tariffs in a way that may prolong inflation challenges, she added.

"We could be at this for much longer than we anticipated," Cook said.

The Fed has held interest rates steady at both of its policy meetings so far this year, after bringing rates down by nearly 2 percentage points since the middle of 2024.

In their forward-looking dot plot released last week, a majority of Fed officials projected that rates might continue declining later this year. However, as the war continues to push up energy prices, traders have become more skeptical of that path.

Traders in futures markets in recent weeks have leaned heavily away from previous bets that the Fed will vote through more cuts in 2026. Instead, bets have risen that rates will hold steady or climb in the months ahead.

Write to Matt Grossman at matt.grossman@wsj.com

(END) Dow Jones Newswires

March 26, 2026 17:43 ET (21:43 GMT)

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