Rochester Warns War Could Push Interest Rates Higher

Financial and central bank circles warn that a prolonged Iran war could keep inflation high and force interest rates up or at least delay cuts. They point to energy and shipping disruptions, weaker trade, and stress in parts of the financial system as the main channels. Many expect that if the conflict does not ease soon, global growth will slow while borrowing costs stay elevated, raising the risk of recession in some countries.

• •The Bank of England warns the Iran war is intensifying risks to the global financial system through higher energy prices and market volatility.
• •Rapidan Energy Group’s Bob McNally outlines three main paths for the Iran war: a ceasefire, further military escalation, or a global recession driven by energy shocks.
• •South Africa’s Reserve Bank says the Iran conflict clouds South Africa’s outlook by threatening exports and raising fuel costs.
• •Malaysia’s central bank argues that economic diversity will help Malaysia absorb Iran war shocks, but still calls for flexible monetary policy.
• •Market strategists such as Rochester argue that if the war drags on, central banks may need to raise or hold rates higher to contain inflation.