Former Federal Reserve Chair and former Treasury Secretary Janet Yellen stated that the conflict involving Iran is making the Federal Reserve more inclined to maintain current interest rates, showing greater reluctance to implement rate cuts than before the event. She predicted that former President Trump's tariff policies have contributed approximately 0.5 percentage points to the current inflation rate of around 3%. Despite significant risks, including the Iran conflict, Yellen expressed considerable optimism about the economic outlook.

Yellen indicated that depending on the duration of the Iran conflict's impact on oil markets, U.S. economic growth will be affected while inflationary pressures intensify, complicating the Federal Reserve's decision-making process. The current inflation rate remains about 1 percentage point above the Fed's 2% target. With the recent Iran shock, oil prices have surged significantly, though the full impact over the coming days remains uncertain. Yellen noted that if the Strait of Hormuz remains closed for more than a few days, oil prices could sustain at high levels or rise further, given the strait's critical role in regional oil transportation.

Prior to the Iran shock, the Federal Reserve believed it had addressed weakness in the U.S. labor market and was waiting for inflation to decline. Yellen emphasized that since the Fed hasn't yet brought inflation back to 2%, they must be concerned about market participants developing expectations that the central bank isn't seriously committed to achieving its inflation target. If such psychological expectations form, markets would worry about inflation remaining elevated for longer, leading to worse policy trade-offs, which is another reason the Fed might maintain its current stance.

Yellen also criticized certain actions by the Trump administration toward the Federal Reserve, describing the president's attempt to remove Governor Lisa Cook as nearly unimaginable. While the Supreme Court hasn't ruled on this matter, Yellen suggested Trump would likely lose the case. She mentioned the president took unprecedented steps by effectively weaponizing the Justice Department against the Fed Chair, referring to the investigation into Chair Powell's comments about cost overruns in the Fed building renovation. Yellen warned that criminal charges in this matter would pose a significant threat to Federal Reserve independence, potentially dealing a serious blow to economic policy and potentially highly inflationary.

Yellen further observed that many of President Trump's policy measures disrupting the global economy are reflected in investors demanding higher risk premiums for U.S. Treasury securities. Increased concerns about U.S. economic policies are also putting downward pressure on the dollar, as markets believe higher risks require compensation.