Big Take The Iran War Is the Fed's Worst Nightmare
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Mar 18, 2026 Peter Conti-Brown, Wharton professor and Fed historian, and Amara Omeokwe, Bloomberg Fed reporter, discuss how the Iran war muddies Fed decisions. They cover stagflation risk, historical parallels to past oil shocks, whether to 'look through' energy shocks, bond market credibility, and how internal Fed divisions and probes could affect future policy.
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Energy Shock Scrambles The Fed's Outlook
- The Iran war has scrambled the Fed's outlook by sharply raising oil prices which can push up inflation and slow growth simultaneously.
- Amara Omeokwe explains higher energy costs could broaden inflation beyond energy and also weaken growth, complicating the Fed's dual mandate.
Prolonged Conflict Could Create Stagflation
- A persistent Iran conflict could create stagflation where the Fed faces impossible tradeoffs between fighting inflation and supporting employment.
- Peter Conti-Brown calls a prolonged shock the "impossibility theorem" because typical levers worsen the other mandate.
1970s Fear Versus 1950s Hope
- Historical parallels split between the 1973 oil shock that led to severe inflation and the late 1940s–50s when postwar inflation didn't take root.
- Peter says we hope for a 1950s outcome but fear a 1970s-style inflationary decade if shocks persist.