Former Powell adviser: Middle East situation is Fed's "main variable"

The situation in the Middle East is becoming a "major variable" for the Federal Reserve. Jon Faust, a fellow at the Johns Hopkins Center for Financial Economics and a former senior adviser to Fed Chairperson Jerome Powell, said that the Iran conflict "could lead to a spike in oil prices, a collapse in market confidence, and even a trigger for a recession," but its ultimate impact remains uncertain.
"Recessions tend to start with some kind of shock - and that may be brewing in the Middle East now, and the probability is slightly higher than before," he said in an interview. The Federal Reserve will hold a meeting on interest rates from Tuesday to Wednesday, and the market is widely expected to maintain the base rate in the 4.25% -4.5% range for the fourth time in a row.
The central suspense at this week's meeting, according to Mr. Foster, is whether Mr. Powell will send a clearer signal about whether a rebound in inflation is riskier or a weak labour market is more worrisome. "This will shed light on the Fed's policy orientation in the second half of the year." He added that the Fed had not yet taken a clear side.