According to a recent forecast by the Organisation for Economic Co-operation and Development, the ongoing crisis in the Middle East is expected to drive US inflation up to 4.2% this year, making it the highest among G7 nations.
When asked whether a rise to 4.2% inflation would be enough to prompt the Federal Reserve to hike interest rates, Rockefeller International Chair Ruchir Sharma in an interview with CNBC expressed doubt. “It should be but I don’t think they will because the fact is that they have has been quite dovish and the Fed has missed its inflation target of 2% now for 56 months in a row,” Sharma said.
He further added, “Fed keeps missing its inflation target and I don’t think they have the anti-inflation zeal here to go ahead and raise interest rates. I don’t expect fed to increase rates just in reaction to oil spikes.”
The OECD warned that rising energy prices due to the US-Israel conflict with Iran could push up inflation not just in the US, but across the world. It also flagged serious risks to global economic growth if disruptions to oil and energy supplies continue or worsen.
‘This war hurt rest of the world much more than America’
Sharma further said that the US economy has been resilient even though “all the actions seems to be carried out of America.” Sharma explains that the reason for this are other factors which overwhelm what Trump has been doing including the AI boom last year and now energy independence.
“The fact is that this war hurt rest of the world much more than America. And that is the irony of the actions being taken by President Trump,” Sharma said.
‘Affordability remains top concern for Americans’
Sharma cautioned that even a 4.2% inflation rate is a serious issue for the United States, especially as the ongoing war in the Middle East pushes oil prices higher and worsens affordability challenges for ordinary Americans.
He stressed that affordability continues to be the number one concern for voters, putting President Trump and the Republican Party on relatively weak political ground ahead of elections. He noted that entering the conflict has further aggravated the problem, which is why the Trump administration appears eager to find an “off-ramp” from the war.
“But I think that this doesn’t take away from the fact that this is a sad situation that a lot economies like of Europe and Asia find themselves in. This was not a war of their choice and they are the bigger victims of what’s been going on. That’s the fundamental point I’m trying to make,” Sharma said.
‘Economic damage already felt worldwide’
With India experiencing a gas shortage, Philippines declaring a national energy emergency, and Thailand encouraging people to work from home to conserve energy, Sharma noted that the economic damage from the war and surging energy prices has already being felt across the world.
He then questioned when the full impact would be felt strongly enough in the United States to act as a “check and balance” on Trump’s decisions.