Iran’s missiles and drones have downed dozens of US aircraft, damaged or destroyed hundreds of the United States’ buildings at its bases in the Middle East, and drained its inventories of military equipment worth billions of dollars, the Pentagon conceded earlier this week.
On Wednesday, Tehran unleashed another unlikely weapon in its war against the US: a maths equation.
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Iranian Parliament Speaker Mohammad Bagher Ghalibaf, who has also been a lead negotiator during talks between Tehran and Washington at different stages during the past six months, typed out a version of the Taylor equation, a formula used by central banks to determine interest rates, in a post on X loaded with a wartime message.
“Let’s see if a hike could open SOH or produce a single barrel,” he wrote, referring to interest rate hikes and the Strait of Hormuz, a crucial waterway Iran has effectively blocked for global shipping.
“You can’t ۲۵bp [basis points] a chokepoint,” he added, seemingly again referring to the strait. “It’s SOH risk premium, and We set it.”
Hours after Ghalibaf’s post, the US Federal Reserve did raise the benchmark interest rate by ۲۵ basis points.
Early in the war, which was launched by the US and Israel against Iran on February ۲۸, Ghalibaf frequently used financial arguments to mock how the conflict was being conducted by the administration of US President Donald Trump, to point to Iran’s ability to hurt Washington economically unless it changed its approach.
Now he’s turned to maths.
“This is a spectacular bit of agitprop from Iran, a country which, if nothing else in ۲۰۲۶, has demonstrated an impressive ability to needle its US opponent,” Chris Beauchamp, chief market analyst at IG Group, told Al Jazeera.
But what exactly is Ghalibaf trying to say? What is the Taylor equation, has the Iran war influenced the US interest rate, and does Tehran “set it”, as the parliament speaker has suggested?
What is the Taylor equation that Ghalibaf cited?
The rule is a formula economists use to estimate where a central bank should set interest rates based on inflation and the strength of the economy.
Developed by economist John Taylor in the early ۱۹۹۰s, the rule links the US federal funds rate to inflation and the “output gap” – the difference between actual economic output and its potential.
In its simplest form, the formula is:
Interest rate = inflation + ۰.۵(output gap) + ۰.۵(inflation − ۲%) + ۲%.
This means the recommended interest rate rises when inflation moves above the ۲ percent target or when economic output exceeds its potential. It falls when inflation weakens or the economy operates below potential.
However, the equation is a benchmark, not a set rule that is strictly followed. Policymakers at the US Federal Reserve weigh other economic factors when setting interest rates.
Is the Iran war a factor in the US interest rate hike?
Trump’s tariffs, the energy shock following the US-Israeli war with Iran, and heavy investment associated with the artificial intelligence boom, taken together, have kept inflationary pressures strong, experts say.
On Wednesday, when the US Federal Reserve raised interest rates by ۲۵bp, it was the first increase in three years.
Fed Chairman Kevin Warsh, in his speech following the rate hike, said renewed fighting between the US and Iran, which has pushed up petrol prices, helped convince Fed officials to support higher rates.
“There’s no hiding from hot spots around the world,” Warsh said.
IG Group’s Beauchamp said, “The Iran war, indirectly, is a huge driver of last night’s hike, though no one wants to admit it.”
“The energy spike has combined with the rise in yields to drive the Fed into a corner with no way out,” he said.
Susannah Streeter, chief investment strategist at the Wealth Club, said there is “no denying” that Iran’s retaliatory action against the US and its allies across the Gulf region has “intensified concerns about energy supplies and led to hotter inflation forecasts”.
“The ongoing geopolitical turmoil and elevated crude prices certainly were key issues behind the Fed’s decision to hike rates,” she said.
Is Iran ‘setting’ the US interest rate?
In short, no.
Wealth Club’s Streeter cautioned that while the war in the Middle East and rising oil prices were certainly an element in the Fed’s decision, they weren’t the “only factors at play”.
“The spending might of AI hyperscalers has also pulsed through the veins of the economy, with strong capital investment and resilient domestic demand adding to inflationary pressures, so policymakers will have been looking at the whole picture,” she noted.
“So, while Tehran has arguably had an influence on some of the forces feeding into US monetary policy, particularly through the impact of the conflict on oil supplies and prices, it is not ‘setting’ US interest rates.”
Streeter said the US Federal Reserve was responding to a much broader set of economic conditions.
“Iran’s actions have affected the inflation outlook, but the decision on where to set interest rates ultimately rests with the Federal Reserve, and there are plenty of other data points policymakers use,” she noted.
What’s behind Ghalibaf’s maths mocking?
In March, Iran’s parliamentary speaker had repeatedly used social media to comment on markets and energy prices, including mocking efforts by the Trump administration to influence oil futures and arguing that financial manoeuvring could not create “actual fuel” at petrol stations.
Last month, Ghalibaf posted a graphic bearing the phrase “Make America Hungry Again” – a play on Trump’s slogan “Make America Great Again” – together with statistics on food insecurity and hunger in the US.
“You can’t cover up defeats with false claims,” he said.
