Jamie Dimon has a feeling inflation will be the ‘skunk at the party’—and the Iran conflict may already be enough to scare off the Fed for good

When the U.S. and Israel launched attacks against Iran this weekend, prompting a military response across the Middle East, concerns spiralled from the humanitarian cost to the macroeconomic. On the latter, analysts have been carefully watching for signals that Iran may disrupt global oil supply, pushing prices higher as a result.

In the U.S., this would be an unpalatable outcome. Voters, stretched by the pandemic-era price rises and then dogged by concerns about tariff-related hikes, are nervous about any further threats to affordability.

Jamie Dimon, CEO of J.P. Morgan, shares their concern. Like many of his peers on Wall Street, he’s not sold on the notion that a conflict in Iran will materially increase the cost of living in the United States—that is, unless it drags on past the month or so that President Trump has suggested.

Speaking at the company’s annual global leveraged-finance conference, Dimon warned inflation may prove to be the “skunk in the room.” The proverbial economic mephitidae is unlikely to be triggered by a conflict in the Middle East alone, said the Wall Street veteran, though the threat it poses increases the longer the military action drags on.

Dimon shared his thinking with various outlets, but explained to Bloomberg: “We look at risk, at the broad range of outcomes, and there are negative outcomes. One of them would be inflation, I call it the skunk at the party. It’s been coming down, but it seems to maybe have levelled off around 3%. If things make it go up—and this is only one thing, you can look at medical prices, construction prices, insurance prices, wages—inflation is a big thing. It’s not just oil, so we’ll say … this will add a little bit, a teeny bit to inflation.”

The Middle Eastern military action may prove inflationary due to disruptions to trade routes. Iran sits along both the Persian Gulf and the Gulf of Oman, and most notably, the narrower stretch of the Strait of Hormuz, which links the two. Oil from Kuwait, Qatar, Saudi Arabia, and the UAE needs to pass through the Strait of Hormuz to be exported around the world—some 20 million barrels a day according to figures from 2024.

If oil manages to make it through the strait, there’s another issue: following the strikes on Iran, the Yemen-based Houthi military threatened to launch attacks on ships passing through the Red Sea. The Red Sea is a vital trading route between the East and West, sitting between the continents of Africa and Asia. It funnels into the Suez Canal, which leads to the Mediterranean Sea, meaning if ships cannot pass through the Red Sea in the south, where it borders Yemen, boats would instead have to divert around the African continent.

Speaking to CNBC, Dimon repeated his skunk theory, but expanded on his thinking on how inflationary Iran alone would prove. The 69-year-old added that in an “isolated” scenario, Iran does not materially increase inflation risks, but added: “This right now will increase gas prices a little bit … and if it’s not prolonged, it’s not going to be a major inflationary hit. If it went on for a long time, that would be different.”

A Fed headache

Speculators were already on the fence about whether the Fed would deliver another rate cut at its meeting this month. The latest jobs report has come back stronger than expected, and President Trump is continuing his tariff agenda at pace—despite a setback from the recent Supreme Court ruling.

Furthermore, wrote RSM economist Tuan Nguyen on Friday, “data on producer prices is not a good sign as far as inflation is concerned.” The Producer Price Index (PPI) increased 0.5% in January, the Bureau of Labor Statistics reported last week—marking an upward trend since October.

Even writing ahead of the weekend’s update, Nguyen wrote: “This is no recipe for rate cuts in the short term, barring an unexpected shock. In our opinion, July would likely be the earliest date to revisit rate-cut conditions. From now to July, we see more tailwinds for spending than headwinds and, as a result, more reasons for inflation to pick up than to fall.”

Iran may have been the final nail in the coffin. At the time of writing, CME’s FedWatch barometer prices a 97% chance of a hold at the meeting in a fortnight’s time.

This story was originally featured on Fortune.com