Analysts warn: escalation of US-Iran conflict reignites concerns of inflation, difficult for the hawkish tone of the Federal Reserve to ease.

Analysts say that the escalating tension between the US and Iran has pushed up oil prices, once again raising concerns about inflation and thereby supporting the Federal Reserve's hawkish stance. Currently, the market believes that September is a key window for the Fed's next rate hike. BlackRock estimates that this conflict will raise global overall inflation by about 0.8 percentage points, but its impact will vary across regions. BlackRock points out in a report that Europe and some Asian regions are more reliant on energy imports, making them more susceptible to the global inflation impact. Analysts at OCBC Bank also agree with this view, stating that "given that labor market data suggest economic stability rather than deterioration, a new energy shock will make the Fed more concerned about the risk of rising inflation." Yung-Yu Ma, Chief Investment Strategist at PNC Asset Management, says that although the rise in profit margins for US mid-cap companies is a positive trend, there is uncertainty about whether these trends can withstand several quarters of rising oil prices and sustained inflationary pressure. Ma believes that the Fed's hawkish stance "will continue until inflation pressures in the energy market, oil market, and other areas ease, which have already returned on an upward trajectory." He says, "We must consider constructing a balanced investment portfolio to diversify some of the risks." Federal Reserve officials intensify "hawkish" stance, September becomes a key rate-hike window Against the backdrop of unrest in the Middle East, several Federal Reserve officials expressed stronger concerns about rising prices last week. 2026 FOMC voter and Dallas Fed President Lori Logan became the first Fed official to call for a rate hike, stating that inflation does not seem to be returning to the Fed's 2% target level. Kansas City Fed President Jeff Schmidt also said that given the further escalation of inflation risks in the coming months, inflation is his current top concern. Despite better-than-expected June inflation data in the US, Schmidt warned that it is too early to conclude that inflation is on a downward trend. Federal Reserve Vice Chairman Philip Jefferson also said that if inflation does not cool down quickly, the Federal Reserve should consider raising rates, but he also said that the current monetary policy situation is good. It is worth noting that Federal Reserve Chairman Kevin Wash, in his testimony to Congress last week, said that policymakers have "zero tolerance" for high inflation and promised to restore price stability, but he did not explicitly indicate support for a rate hike. The Fed will hold its next monetary policy meeting on July 28-29. Federal Reserve officials will enter a routine silent period this week, during which the market will lack new policy signals. While some officials are concerned about high inflation and hint at the need for a rate hike, the market currently widely expects the Fed to maintain interest rates in July. According to the Chicago Mercantile Exchange's "Fed Watch" tool, traders currently believe there is an 83% probability that the Fed will keep interest rates unchanged in July, with the market generally pushing back the next rate hike window to September or October. Specifically, the probability of a 25 basis point rate hike in September exceeds 50%.