Impact of the Iran War on U.S. Economic Policy and Nuclear Assessments

Federal Reserve Chair Jay Powell indicated that the ongoing war in Iran is likely to contribute to rising inflation, particularly as oil prices surged above $110 per barrel following attacks on Gulf energy infrastructure. During the March Federal Open Market Committee (FOMC) meeting, the Fed decided to maintain interest rates at 3.5 to 3.75 percent, balancing the potential economic fallout from the conflict with sluggish job growth. Powell emphasized the uncertainty surrounding the economic effects of the war, stating, “The thing I really want to emphasise is that nobody knows. The economic effects could be bigger, they could be smaller.” The Fed's projections suggest a potential quarter-point rate cut before the end of 2026, with twelve of the nineteen FOMC members anticipating at least one cut.

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Following the Fed's announcement, U.S. stocks experienced a decline, with the S&P 500 index closing down 1.4 percent. Powell has faced pressure from former President Donald Trump to reduce interest rates. Amid ongoing investigations by the Department of Justice (DoJ) into the costs of renovations at the Fed's headquarters, Powell asserted his intention to remain on the board until the investigation concludes. A recent ruling by a judge quashed the DoJ's attempts to subpoena Powell, although U.S. Attorney Jeanine Pirro is appealing this decision.

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In a Senate hearing, U.S. spy chief Tulsi Gabbard provided conflicting assessments regarding Iran's nuclear capabilities, which have been a central justification for Trump's military actions against the country. In her prepared remarks, Gabbard claimed that Iran's nuclear program had been “obliterated” by U.S. and Israeli strikes in June, stating there had been no efforts to rebuild enrichment capabilities since then. However, during her oral testimony, she refrained from reiterating this assertion, instead suggesting that U.S. intelligence believed Iran was attempting to recover from the damage inflicted on its nuclear infrastructure.

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The U.S. intelligence community has issued contradictory statements regarding Iran's nuclear ambitions over the past year. Last year, Gabbard testified that intelligence officials believed Iran was not actively pursuing a nuclear weapon. However, following U.S. strikes on Iranian nuclear sites, Trump claimed that Iran's facilities were “completely and totally obliterated.” In February, the White House warned of an “imminent nuclear threat” from Iran, with Trump's special envoy Steve Witkoff suggesting that Tehran was close to acquiring industrial-grade bomb-making material.

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Critics of the U.S. approach to Iran's nuclear program have pointed to the inconsistencies in official statements as a cause for concern. The shifting narratives have raised questions about the credibility of intelligence assessments and the justification for military action.

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There remains a notable discrepancy between the assessments of Iran's nuclear capabilities, with some officials asserting a significant threat while others downplay the urgency. This inconsistency complicates the U.S. response to the situation and raises concerns about the potential for miscalculation in military engagements.

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• “The thing I really want to emphasise is that nobody knows,” — Jay Powell, Chair of the Federal Reserve

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• “There has been no efforts since then to try to rebuild their enrichment capability,” — Tulsi Gabbard, U.S. Spy Chief

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• “On the question whether I will leave while the investigation is ongoing, I have no intention of leaving the board until the investigation is well and truly over with transparency and finality,” — Jay Powell, Chair of the Federal Reserve

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