Austan Goolsbee said the US-Iran conflict looks more like an inflation shock. He said it has not yet become a shock that lifts inflation while also hitting jobs, which could force the central bank to weigh its goals against each other.
He said changing the central bank’s inflation framework is difficult, and he is open to new approaches. He said the bank should use as much data as possible, but there is no single fix for inflation.
Positioning For Elevated Inflation Risk
He said he would watch for weak demand if low consumer confidence leads to lower consumer spending. He said the US may be moving towards labour scarcity due to an ageing population and limited immigration.
He said the longer oil prices stay high, the more likely people are to expect higher inflation, which would be extremely problematic for the central bank. He said the labour market is stable but not strong, and payroll gains are not a good measure of slack right now.
He said there are different views within the central bank about inflation and the job market. He said signs of more persistent inflation could include ongoing rises in core services, wealth-driven spending, and wage rises in jobs linked to artificial intelligence work.
He said he is not surprised by supply chain strains linked to the length of the conflict. He said all policy options remain available, and persistent inflation would require a rethink of the policy path.
Managing Risk Across Rates Energy And Equities
The ongoing US-Iran conflict is acting as a direct inflationary shock, and we should position for continued price pressures. With Brent crude recently hitting $105 a barrel due to persistent geopolitical risk, the chance that higher energy costs feed into broader inflation expectations is growing. This environment suggests that trades betting on higher oil prices or increased volatility in the energy sector could be favorable in the coming weeks.
Given that inflation has remained stubbornly above the central bank’s target for five years, with the latest CPI reading for April 2026 coming in at a hot 3.8%, policy uncertainty is extremely high. The clear differences in opinion among policymakers mean we should expect significant market swings around every data release and Fed meeting. This points toward using options on interest rate futures to hedge against, or speculate on, unexpected policy shifts, as the market is now pricing out any rate cuts for this year.
We should look past the headline payroll gains, which are no longer a good measure of the labor market’s health. While the last report showed a respectable gain of 190,000 jobs, wage growth remains sticky at 4.1%, directly contributing to the persistence of core services inflation. This dynamic suggests the central bank will remain hawkish, putting a ceiling on any equity market rallies.
There is a significant risk of demand “underheating” as high prices take their toll on households. The latest consumer confidence reading dropped to 95.2, an 18-month low, and we need to watch for this sentiment to translate into lower retail sales figures. Protective put options on consumer discretionary ETFs could serve as a valuable hedge if spending begins to falter.
Evidence of new supply chain problems is emerging, which will only add to the inflationary pressures we saw back in 2024 and 2025. This backdrop of geopolitical tension, sticky inflation, and a complex labor market signals that volatility will likely remain elevated. We see the VIX consistently trading above 20, justifying strategies that benefit from sharp price movements rather than directional certainty.
