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Federal Reserve Chair Jerome Powell adopted a 'strategic ambiguity' approach during remarks at a Harvard event, indicating the central bank is hesitant to respond to the current oil-driven supply shock. Powell acknowledged rising risks to both sides of the Fed's dual mandate—price stability and maximum employment—as the Iran war prolongs and energy prices remain volatile. The Fed is weighing the delayed effects of previous rate hikes against potential inflationary pressures from geopolitical tensions and supply chain disruptions.
This ambiguity creates uncertainty for markets, particularly in commodities and USD-linked assets. Traders are closely monitoring how the Fed balances its response to transitory supply shocks versus persistent inflation risks. The central bank's reluctance to commit to rate cuts or hikes could prolong market volatility, especially in energy markets where oil prices are a key driver of global economic sentiment.
For Gulf investors, the Fed's policy lag and strategic ambiguity may impact USD liquidity and capital flows into emerging markets. The ongoing Iran conflict adds another layer of risk to oil prices, which directly affect energy-dependent economies in the MENA region. Traders should watch upcoming inflation data and Fed communication for clues on policy direction.
