Fed Officials Signal Rate Hikes as Middle East War Stirs Inflation

Federal Reserve officials on May 29, 2026, indicated they may need to raise interest rates if the Middle East conflict fuels a lasting surge in already-high inflation, marking a sharp reversal from prior expectations of rate cuts. Vice Chair for Supervision Michelle Bowman, a leading dove, said the energy shock could shift her risk assessment, while Philadelphia Fed President Anna Paulson called current policy well-positioned but acknowledged scenarios for further tightening. Kansas City Fed President Jeffrey Schmid stressed that inflation is “too hot” and hinted at using balance sheet reduction as an additional tool. The Personal Consumption Expenditures Price Index rose to 3.8% year-over-year in April, and the New York Fed’s underlying inflation gauge jumped to 4% from 3.5% in March. Markets now price in hikes from the benchmark range of 3.50%-3.75%, abandoning earlier bets on cuts as supply chain distortions and energy price surges persist.