The impact of the conflict combined with the ripple effects of tariffs has put the Federal Reserve in a dilemma under dual pressures.

Ask AI: How would the U.S.-Iran conflict, when layered with the aftershocks of tariff fallout, threaten the stability of the U.S. economy?

China News Service, April 8. According to a Reuters report, Austan Goolsbee, president of the Federal Reserve Bank of Chicago, said on the 7th that he is concerned the U.S.-Iran conflict could not only weigh on U.S. economic growth but also further push up inflation, putting the Federal Reserve in a difficult position, because at that time there would be no “ready-made solution” to address it.

Speaking at a speech at the Detroit Economic Club on that day, Goolsbee said that price increases triggered by tariffs were supposed to gradually cool off, but the war brought new shocks. As oil prices continue to rise, inflation could become further entrenched, posing a threat to the current job market that is “stable but not robust.”

He said this would put the Federal Reserve in a dilemma—one in which it cannot see a clear policy path and also cannot easily determine whether to further tighten or shift to easing. Goolsbee warned that the worst-case scenario is for high oil prices to trigger a “stagflation-like shock” before tariff-driven inflation has fully dissipated, weakening consumer confidence, prompting households to cut spending, increase savings, and ultimately drag the U.S. economy into a recession with stagflation characteristics.

Goolsbee also said he takes a “cautious, even somewhat tense” view of the current outlook for the U.S. economy. In a subsequent interview with a Detroit local radio station, he further said that because the outlook is uncertain, discussions within the Federal Reserve about the direction of the next steps in policy could be quite intense.

Last month, the Federal Reserve kept the short-term interest rate unchanged in the 3.5% to 3.75% range and signaled that if inflation were to fall back toward the 2% target again, it could still cut rates again within the year. Markets currently broadly expect that the Federal Reserve will keep interest rates unchanged for the rest of this year.