Republican Lawmakers Want Interest Rate Cuts, Despite the Iran War

Republican lawmakers still want the Federal Reserve to cut interest rates this year, regardless of how the United States’ war in Iran is currently affecting prices.

Both conservative and liberal economists say the Iran war’s effect on inflation and interest rates will come down to its duration; a monthslong conflict would threaten to prolong today’s supply chain problems and potentially deliver a blow to the U.S. economy, they say.

In its fourth week, the war in Iran has already caused a surge in gas prices and complicated the White House’s affordability message.

But all of that, Republicans say, is a short-term problem.

“What he’s doing with Iran had to be done. It’s something that couldn’t wait,” Rep. Ralph Norman said. “The president’s doing the right thing to take them out, and the cost, we just had to pay for it.”

Norman and other Republicans on committees overseeing the Fed said the central bank should pursue aggressive rate cuts, echoing what President Donald Trump has long called for. So far, the war is not changing that calculus.

Rep. Byron Donalds, the Republican frontrunner for Florida governor, said the Fed could have cut rates by a quarter percentage point this month, saying the war in Iran is “temporary.”

“I think the Fed’s kind of behind the curve, because outside of the military conflict in Iran, the pillars of the economy and where we’re going economically have been actually quite strong,” Donalds said. “The Fed’s kind of been handcuffing the economy to a degree.”

The Fed Board of Governors voted to maintain rates earlier this month in the face of uncertainty from the war in Iran, which may soon involve ground troop operations that Republicans have said they oppose.

Federal Reserve Chair Jerome Powell told reporters following the interest rate decision that “it is too soon to know the scope and duration of the potential effects on the economy,” though long-term expectations are in line with the central bank’s goal of 2% inflation. Currently, interest rates sit at 3.5 to 3.75%.

Economist Wayne Winegarden, a fellow at the conservative Pacific Research Institute, said cutting rates in wartime could overstimulate consumer demand and risk an inflationary spiral.

“The war has put the Federal Reserve in a very difficult situation, and this knee-jerk reaction of ‘Oh, we have to cut interest rates’ could make a bad situation worse,” Winegarden said.

In Congress, however, even the Republicans who have expressed hesitation about cutting rates aggressively amid the ongoing war in Iran still supported decreased rates.

Sen. Cynthia Lummis, who sits on the Senate Banking Committee, said she’d like to see “an interest rate decrease,” but one that’s “probably gradual.”

Rep. Dan Meuser, a member of House Financial Services, said getting rates down to 3% this year will lead to an “enormous surge” in home purchases and capital investment. He acknowledged that the Iran war could derail those goals.

“It wasn’t part of the plan. The plan was a good one, and this presented itself as something that the president felt he needed to do,” Meuser said.

Meuser was among the few Republicans who said they were okay with the Fed’s decision to maintain rates this month.

“Ultimately, obviously, with some uncertainty and volatility, I understand their reasoning behind keeping it steady,” Rep. Mike Lawler said.

Trump has pressured Powell to slash rates to 1% or lower and made clear that he expects his Fed chair nominee, Kevin Warsh, to pursue aggressive cuts.

The president has given reporters conflicting estimates of when the war will end. The U.S. will meet Iranian diplomats for peace negotiations in Pakistan this week, according to the host country.

Jared Bernstein, who served as the chair of the White House Council of Economic Advisers under former President Joe Biden, said the Fed also has to grapple with people’s expectations for inflation.

“People expect the Fed to keep inflation around the 2% target,” said Bernstein, a fellow at the Center for American Progress. “If that confidence gets shaken, it can unleash a much bigger problem.”