Ghalibaf: US inflation expectations dependent on Hormuz Strait, Bab al-Mandab

Pars Today – Mohammad Baqer Ghalibaf, Speaker of the Iranian Parliament, wrote that US inflation expectations cannot be managed or anchored by raising or lowering interest rates, because they are being affected by a supply-side shock resulting from the closure of energy chokepoints, namely the Strait of Hormuz and Bab al-Mandab, and are unrelated to interest rates.

According to Pars Today, citing IRNA, Ghalibaf wrote on Wednesday on his account on the social media platform X that the US Federal Reserve’s much-publicized interest-rate decision would be ineffective under any circumstances, asking: “Let me see if the Federal Reserve can reopen the Strait of Hormuz by raising interest rates or produce one more barrel of oil!?”

The Iranian parliament speaker said US inflation expectations cannot be managed or anchored by raising or lowering interest rates, because they are being affected by a supply-side shock resulting from the closure of energy chokepoints, namely the Strait of Hormuz and Bab al-Mandab, and are unrelated to interest rates. “It is the Strait of Hormuz risk” that determines the rate, he said, adding that control over this risk is now in Iran’s hands.

Ghalibaf stressed that under normal conditions, a central bank traditionally seeks to anchor inflation expectations to its inflation target or a credible long-term inflation rate in order to contain inflation. It does so by adjusting interest rates in line with its inflation target and the economy’s deviation from its desired level of activity.

He added, however, that in this post, the Iranian parliament speaker is altering the classic formula for determining interest rates in the United States and warning market participants that manipulating interest rates will not be enough to achieve the goal of containing inflation in the US. They must also factor new variables, such as the closure of the Strait of Hormuz and Bab al-Mandab, into their calculations and accept that conditions have changed. Until Iran decides otherwise, he said, US inflation expectations cannot be anchored, and inflation will continue to rise.