Although a two-week ceasefire was reached between the US and Iran, the war’s impact on the US economy by driving up oil prices has increased. This has raised the risk of inflation and pushed back the possibility of a Fed interest rate cut until the end of the year.
Besides postponing the move, it has been stated that the Fed may even raise interest rates if necessary, and Wall Street giants have also begun to revise their Fed interest rate forecasts.
At this point, Franklin Templeton predicts that the Federal Reserve will make only one interest rate cut this year.
Franklin Templeton’s chief strategist, Stephen Dover, has limited the likelihood of a Fed interest rate cut to just one this year. This reduces Franklin Templeton’s rate cut forecast from two to one.
Dover stated that US inflation could rise to at least 3%, and in a worst-case scenario, to 4%.
“We were expecting inflation in the US to fall somewhat this year, from around 3% to closer to 2%. However, we now think it will be at least 3% and could rise to 4% under very bad conditions.”
Dover, who specifically expressed concerns about inflation, stated that the likelihood of the Fed lowering interest rates has decreased compared to previous periods.
“Depending on the situation, they may even have to raise interest rates, which could lead to a negative scenario like stagflation. That’s why we’ve lowered our forecast for the number of Fed interest rate cuts this year from two to one.”
The fact that it could take a considerable amount of time for oil prices to return to pre-Iran crisis levels is also putting upward pressure on inflation. Furthermore, “uncertainty about what will happen in the Middle East is also affecting prices.”
*This is not investment advice.