Iran Peace Deal Won't Quell Fed's Inflation Fears

The Iran peace deal may ease pump prices, but it won't solve the Federal Reserve's inflation dilemma. Before the conflict, the U.S. economy was already showing signs of overheating, and a return to pre-war oil prices could even worsen cost-of-living fears by spurring demand at a critical juncture.

The Fed's guidance on further easing has been met with skepticism, and markets have priced in almost two rate hikes over the next 12 months. Despite the U.S.-Iran ceasefire framework agreement, rate-hike expectations remain unchanged.

Apollo Chief Economist Torsten Slok pointed out that the market narrative has flipped from seeing oil prices as a direct inflation driver to one where lower energy costs could fuel demand in an already hot economy.