The Federal Reserve has cautioned that the ongoing conflict in Iran poses a significant risk to inflation, potentially leading to stagflation if the situation persists. The blockade of the Strait of Hormuz has severely disrupted global oil supplies, pushing Brent crude prices above $126 per barrel. This has prompted the International Monetary Fund to lower its global economic growth forecast for 2026 by 0.2 percentage points and raise its inflation forecast by 0.6 percentage points. Market expectations for Federal Reserve rate cuts in 2026 remain low, with a 3.6% probability of a cut in June and an 88.5% likelihood of holding rates steady in July. The Fed's focus on inflation risks suggests no rate cuts this year, as ongoing geopolitical tensions and supply disruptions increase the potential for a sharp rise in oil prices. The likelihood of WTI crude oil reaching $150 per barrel by May 2026 has also increased, reflecting sustained supply concerns.