Qalibaf Challenges US Interest Rate Hikes as Inflation Driver

Iran's parliament speaker Mohammad Baqer Qalibaf has challenged the effectiveness of interest rate hikes in controlling inflation, attributing price pressures to supply-side shocks caused by the closure of strategic energy corridors. In a post on social media platform X ahead of the US Federal Reserve's closely watched interest rate announcement, Qalibaf argued that raising interest rates would not open the Strait of Hormuz or produce additional oil barrels.

Qalibaf presented a modified version of the Taylor Rule, an economic formula used to guide central bank interest rate decisions. He wrote: 'Straits Taylor Rule: i = r* + π* + 1.5(π−π*) + 0.5(y−y*) + α(SOH−SOH*) + β(BEM−BEM*), α,β > 0.'

In his analysis, Qalibaf claimed that inflation expectations in the US cannot be anchored through adjustments to interest rates because they are shaped by a supply-side shock stemming from the closure of energy chokepoints. He said it is the 'Strait of Hormuz risk' that now determines the rate, adding that control over this risk currently rests with Iran.

The Iranian parliament speaker's remarks reflect a broader argument that the traditional era of managing inflation and inflation expectations through demand-side tools such as interest rates has ended. Central banks typically aim to anchor inflation expectations to a credible long-term inflation target by adjusting interest rates in line with that target and the economy's distance from full recovery.