Federal Reserve Board member Waller is cautious about interest rate cuts, warning of long-term conflict risks

ME News, April 18 (UTC+8): Federal Reserve Governor Waller said that, due to the energy shock triggered by the Iran War, he is cautious about whether a rate cut will be needed in the short term, and warned that the conflict could have a sustained impact on inflation. In his remarks, Waller outlined two main scenarios. In the first scenario, if the Strait of Hormuz reopens and trade flows return to normal, officials would be able to disregard the surge in energy prices and shift their focus later this year to a weak jobs market. He said that if this happens, “I think there is a prospect that underlying inflation will continue to fall back toward the 2% target, which would make me cautious about the current rate cuts and more inclined to support the labor market through rate cuts later this year when the outlook is more stable.” However, he warned that oil prices and the overall market have been underestimating the risk of the conflict becoming prolonged. Regarding inflation, he said, the risk is that the longer the conflict lasts and the longer energy prices remain high, the greater the likelihood that these high prices will feed through to other prices, because businesses will factor in costly energy input expenses when setting prices. He said that if this occurs against a backdrop of weakness in the labor market, it would limit the policy response space. In this situation, he would weigh the risks between higher inflation and a weaker labor market: “If the inflation risk exceeds the labor market risk, this may mean keeping the policy interest rate within the current target range.” (Source: Jintou)