Oil Tops $130? Fed Faces a New Obstacle to Monetary Policy

- The Federal Reserve anticipates increasing interest rates due to surging oil prices and inflation threats. - An escalating Middle East conflict pressures oil supply and inflation rates. The Federal Reserve plans to raise interest rates in response to growing inflation risks, which are driven by a potential surge in oil prices. This volatile situation stems from recent geopolitical tensions, particularly US and Israeli airstrikes on Iranian nuclear sites, events that have prompted Iran to threaten blocking the Strait of Hormuz. The prospect of rising oil prices could delay the Federal Reserve’s timeline for cutting interest rates — or even force it to consider rate hikes. This scenario could heighten tensions with the Trump administration, which has been pushing for rate cuts. On June 22, 2025, Cryptopolitan reported that the Federal Reserve will likely hike interest rates due to heightened inflation risks. According to the Cryptopolitan report, these risks are driven by a potential oil price spike that would materialize if Iran follows through on its threat to block the Strait of Hormuz, a critical global oil route. The report also cited a JP Morgan warning that such a blockade could push oil prices to $130 per barrel. Consequently, this price increase could cause US inflation to climb back to 5%, an inflation rate that would mirror the levels of March 2023, when the Fed actively raised rates. The Federal Reserve also reviewed research showing that a sustained oil shock typically weakens consumption and investment while negatively impacting the dollar. As an oil-importing nation, the United States would consequently see its national wealth decrease, leading to less spending and a weaker exchange rate. Political tensions continue amid these economic concerns. For instance, Donald Trump has advocated for interest rate cuts, a stance he has maintained since before his 2024 reelection, and has consistently criticized Fed Chair Jerome Powell. Powell, who has remained silent in response to these criticisms, now faces the likelihood of raising rates to combat resurgent inflation, despite Trump's demands. In this context, analysts suggest that oil prices reaching $130 per barrel and inflation approaching 5% or 6% would likely negate the possibility of rate cuts this year. Meanwhile, on June 22, CoinMarketCap reported that Ethereum (ETH) was trading at $3,214 as of 12:00 UTC, and its 24-hour trading volume had increased by 2.3%.